Congress and President Obama have just 17 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 14, 2012.
See also: An explanation of the fiscal cliff
Yesterday President Obama and Speaker Boehner met at the White House. White House aides described the meeting as “frank” but no new breakthroughs were made in the discussions. While both sides said the lines of communication are still open, Boehner is still scheduled to adjourn the House and go back to Ohio this weekend and no further meetings are scheduled at this point.
The New York Times quotes one senior administration official as saying the Republicans have gone “backwards” in negotiations by not providing any specific spending cuts they want exchange for tax rate increases. The article also states that rank and file Republicans have not begun laying the legislative groundwork for a deal that raises taxes, and time is running out for the logistics involved in passing a law before January 1, 2013.
Meanwhile, POLITICO reports that Democrats are split on the issue of Medicare. Some Democrats would be willing to make some cuts to the program in exchange for tax rate concessions from Republicans. However, an increasing number of congressional Democrats are now opposed to any deal that would raise the Medicare eligibility age.
A NBC/Washington Post poll released yesterday showed that the Americans from both parties want their leaders to “compromise” to find a solution on the fiscal cliff. However, when pressed as to what their party should compromise both Democrats and Republicans were less willing to give up anything. The poll also showed Americans trust President Obama over Speaker Boehner on the fiscal cliff by a two-to-one margin.
On December 11, 2012 Boehner went to the House floor and criticized the President for not providing enough specifics on spending cuts, and for “slow walking” the negotiation process. The White House was quick to deny that allegation, pointing to its original offer which included $600 billion in spending cuts.
CBS News reports that on Monday Obama shared a second proposal which slightly reduced tax revenue increases from $1.6 trillion to $1.4 trillion. Republicans also provided a new counter-offer, but no details were leaked about that proposal. A senior GOP House aid told CBS News that the President’s new offer is still not acceptable.
According to the Wall Street Journal, the deal that is being discussed would involve two phases. The first phase would extend lower tax rates and establish new spending rules on January 1, 2013. The second phase would then force Congress and the President to make more significant changes to entitlement spending and the tax code on a later date.
Even if Boehner and Obama agree to a deal the larger question that remains is whether Boehner can obtain enough votes from his caucus to secure passage of a bill. Many House Republicans have signed a pledge not to vote for any tax increase at all, not matter what the circumstances. Speaker Boehner likely will have to piece together enough votes from the few moderates in the House in order to obtain a majority with the help of Democrats. According to the New York Times, Boehner may have more sway over his members than in 2011 when he was unable to secure enough votes for a major compromise on the debt limit.
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.
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.
Yesterday’s fiscal cliff talks took on an especially pessimistic tone. Aides from both sides now seem resigned to the fact that a deal will not get done before the January 1, 2013 deadline. The question now is whether public pressure leading up to the fiscal cliff will force either side to come back to the negotiating table with more significant concessions than have already been made.