Congress and President Obama have just 21 days remaining until a series of tax rates and spending cuts known as the “fiscal cliff” take effect on January 1, 2013. If no solution is reached, tax rates will increase on nearly every Americans, and the spending cuts will have a dramatic effect on national defense and programs like Medicare. Over the past 48 hours Republican opposition to a decoupling of the tax cuts for the rich and middle class has softened. At the very least, a deal to avoid tax hikes on the middle class now appears more likely. Here are the latest developments as of December 10, 2012.
See also: An explanation of the fiscal cliff
The main opposition to any deal continues to be the House of Representatives, where Republicans have a majority. Yesterday President Obama and House Speaker John Boehner met face-to-face for the first time since November to discuss the fiscal cliff. Details from the meeting were not discussed, but the fact that the two sides were meeting at all was taken as a positive sign.
President Obama and Democrats continue to push for an immediate extension of lower tax rates for the middle class ahead of negotiations over tax cuts for the rich and spending cuts. On CNN’s State of the Union Rep. Tom Cole (R-OK) said that he believed that such a bill would pass in the House if it came to the floor. However, Speaker Boehner and the Republican leadership control which bills come to the floor, and thus far they have been unwilling to let any middle class tax cut extension get a vote without a simultaneous vote on tax cuts for the rich.
Today President Obama will go on the road to once again try to exert pressure on Republicans to accept his proposal. According to CBS News, the President’s speech will focus on the fiscal cliff, and specifically how “devastating” the new tax rates and spending cuts would be for middle class Americans if they took effect on January 1.
According to Reuters, a major obstacle to any deal is the distrust between the two sides. Any compromise will likely rely on a future agreement to reform the tax code and/or entitlement programs. However, Democrats do not trust Republicans in reforming the tax code, believing they will game the system to favor the rich. Republicans do not trust Democrats to make serious cuts in entitlement spending. Without some degree of trust it is hard to see a larger deal on the fiscal cliff getting done.
The Washington Post reports that this week is crucial to get a broad agreement in place in order for Congress to be able to work out the details and pass a bill before the end of the year. White House aides have kept a large part of the President’s schedule open to meet with Boehner if necessary. The Post reports that the “contours of a deal” are beginning to take shape. The projected deal would include approximately $1 trillion in tax hikes to the rich along with hundreds of billions in spending cuts to entitlement programs.
There are many signs that the Republican stonewall against higher tax rates on the rich may be crumbling. On December 6, 2012, Senator Tom Coburn (R-OK) expressed a willingness to see tax rates go up on the rich as part of a larger package to reform the tax code. Republican Senators Susan Collins from Maine and Tom Cole from Oklahoma also advocated extending the middle class tax cuts now and fighting over the tax rates for the rich next year.
On December 3, 2012 congressional Republicans sent their first counteroffer to President Obama on the fiscal cliff. The offer includes $800 billion in new tax revenue by closing loopholes and deductions, but does not specify which loopholes and deductions would be eliminated. In order to generate that amount of revenue popular provisions like the home mortgage interest deduction would likely have to be considered. The Republican plan would also raise the retirement age for Medicare, cut other health care programs, and cut benefits under Social Security to raise another $800 billion. The offer largely mimics the Simpson-Bowles proposal of November 2011, which was rejected at the time by both Congress and the White House.
The White House rejected the Republican offer within hours of its release, saying it did not meet the test of “balance” between new revenues and spending cuts. In addition, White House Press Secretary Jay Carney said the President would not sign a bill that does not raise tax rates on the top two percent of income earners.
If a deal is not worked out, a poll from Washington Post shows that 53 percent of Americans will blame Republicans in Congress, compared to just 27 percent who would blame President Obama.
On Fox News Sunday on December 2, 2012 Speaker John Boehner (R-OH) said he was “flabbergasted” by the White House proposal delivered by Treasury Secretary Timothy Geithner. President Obama’s opening bid included $1.6 trillion in additional tax revenue as well as over $400 billion in promised spending cuts. The tax revenue would come from increasing tax rates on the richest Americans, raising the tax rate on capital gains and dividends, as well as raising the estate tax. Obama also proposed extending the payroll tax cut or replacing it with another measure. Boehner said he told Geithner “you can’t be serious.”
Meanwhile, Geithner went on CNN’s State of the Union on Sunday and gave very indication that the administration is very serious about their offer. Geithner said the White House would not accept a deal to avert the fiscal cliff unless the compromise included higher tax rates on the rich as part of the deficit reduction package. Republicans have, thus far, been unwilling to accept any tax rate increases.
The fact that both sides are still talking is a positive sign. It now seems more likely that a deal could be reached by January 1 as Republicans are apparently conceding a lost fight over higher tax rates on the rich. The big question is what Republicans will demand for that concession, and whether the White House and Democrats will be willing to give it up.