Congress and President Obama have just 28 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. Overall, the potential for a deal still appears unlikely as both sides have rejected the initial offer of the other. Here are the latest developments as of December 3, 2012.
See also: An explanation of the fiscal cliff
Yesterday 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, 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 yesterday 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.
Behind the scenes negotiations between the White House and congressional Republicans likely will continue this week. However, both sides seem to be willing to take a hardline stance and preparing their members to go over the cliff. When asked about the possibility of going over the cliff, Boehner plainly stated, “There is clearly a chance.”
At the same time, there is some indications of cracks in the Republican stonewall opposition to any tax rate increases. Most recently, Senator Bob Corker (R-TN) indicated a willingness to accept tax increases in order to avoid the fiscal cliff. The key, however, is the House where Boehner can keep any bill from even getting to the floor for a vote if all of his party members stay in line. Think Progress has compiled a list of 36 congressional Republicans who have indicated some kind of willingness to accept additional taxes.
House Minority Leader Nancy Pelosi (D-CA) is currently threatening to mount a discharge petition campaign to hold a vote on extending the Bush tax cuts for the poor and middle class. The Senate has already passed an extending all the Bush tax cuts except for top earners, which means the bill could become law if it passed through the House. However, Pelosi would need 218 signatures in order to force a vote on the petition. The Democrats currently have 192 votes in the House, meaning they would need at least 26 signatures from Republicans to get a vote on their bill. If the bill came to a vote, it would likely pass since no most representatives would not want to be seen as voting against an extension of lower tax rates for the poor and middle class.
According to the Wall Street Journal, Republicans would not agree to any tax rate increases on the rich, but may agree to some addition revenue if Democrats were willing to raise the retirement age on Medicare and reduce cost of living adjustments for Social Security. So far Democrats have been unwilling to agree to any entitlement cuts without a tax rate increase on the rich.
The Republican counteroffer did nothing to move negotiations further, as it largely reflected ideas that were rejected by both sides just one year ago. The key issue continues to be the tax rate for Americans who earn $250,000 or more per year. President Obama and Democrats are insistent that the rich pay more as part of any solution to reduce the deficit. Republicans are still opposed to any tax rate increases on the rich and demand more from Democrats in the form of entitlement spending cuts. At this point, it still appears likely that the country will at least temporarily go over the fiscal cliff.