Lawmakers are downplaying hopes that they will avert the so-called fiscal cliff of expiring tax cuts and automatic budget cuts set to hit in January with a major deficit-reduction and tax deal, but they suggest a partial fix is likely.
Leading lawmakers have no intention of letting the sequester happen or all of the tax cuts expire. Nor will Congress vote to punt those events entirely, even for a few months, congressional aides said. Instead, congressional leaders are discussing a plan to make a down payment of targeted cuts worth about half of the $110 billion in sequestration cuts set to hit in January, while establishing a framework for additional cuts.
Ideas of Congress taking bold legislative steps during the postelection lame-duck session have given way to talk of temporary fixes and handing over these longer-term policy implications to the next Congress.
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“It will be very difficult to put together a comprehensive plan in just six weeks,” House Budget Committee ranking member Chris Van Hollen, D-Md., said in an interview. “Everyone’s going to have to scramble” to find resolution, Van Hollen said.
A framework including a down payment has been floated repeatedly over the last few months, but shifted recently from a suggestion by the so-called Gang of Eight to a proposal entertained by Democratic leadership, albeit one that remains a backup option. The framework would task committees of jurisdiction with finding additional cuts that would be imposed later next year.
That idea is a part of conversations between the office of Senate Majority Leader Harry Reid, D-Nev., and the White House Office of Management and Budget, Democratic aides said. But staffers said talks are covering a range of options and do not focus on one plan. Staffers have also reached out to the Congressional Budget Office, sources said.
Democrats warn that two big obstacles loom. The parties will not agree on a ratio between domestic and defense cuts before the election, nor on including tax revenue in a deal in terms of a sequester replacement or to offset extending the Bush tax cuts.
Democrats in both chambers said the framework depends on Republicans agreeing to let taxes rise for top earners. But “tax hikes are a nonstarter, as the speaker has made clear,” said Kevin Smith, a spokesman for House Speaker John Boehner, R-Ohio.
Aides in both parties said all talks before the election will be at best vague—and pointless at worst. Democratic aides acknowledge their plans rely on President Obama winning.
Obama said during Monday's debate with GOP nominee Mitt Romney that the sequester “is something that Congress proposed. It will not happen.” White House aides played down the statement, saying Obama meant that no one wants sequestration to occur. In an interview with the Des Moines Register published on Wednesday, Obama described the budget sequester as a "forcing mechanism" to help push a sharply divided Congress to try to work out a deal on long-term deficit reduction. He added that he believed that a grand bargain with Republicans on the budget would be achievable within the first six months of his second term if he is re-elected.
Democratic aides said on Tuesday that the statement will not reduce Obama’s leverage much if he wins reelection, since the automatic cuts will take effect if no bill superseding them passes.
But Obama’s statement, coupled with the warnings from Van Hollen and, previously, Boehner that it may be too difficult to enact any large deal regarding comprehensive tax and entitlement reform during the session between the election and Christmas, provide brackets within which negotiating will occur. A deal will avert sequestration without providing a permanent deficit-reduction solution.
The chances that the election will produce any clear beacon from voters settling differences on such pressing questions as renewing tax cuts—and for whom—appear to be fading. Instead, the growing worry of yet more delays and dead ends is already prompting warnings from business leaders and experts that more economic damage could be done through inaction, with still more challenges around the corner. For instance, as early as a few days into the new Congress, the nation will again reach its debt limit.
“At a time when economic growth is less than 2 percent, and with nearly 25 million Americans either out of work or underemployed, the still-fragile U.S. economy cannot sustain—and the American people do not deserve—the impact of more gridlock in Washington,” warned a letter last week to Obama and members of Congress from the Financial Services Forum, which comprises the CEOs of 20 of the largest and most-diversified financial firms.
Beyond sequestration and the Bush-era tax cuts, a number of tax items are coming up for renewal or expiration. One of these is the 2 percentage-point cut to the payroll tax first enacted in 2010 and extended through 2012 as a form of economic relief for the middle class. The tax is set to revert back to 6.2 percent on Jan. 1. While many Democrats, including House Minority Leader Nancy Pelosi of California, are calling for letting the cut expire, Van Hollen said he believes a permanent extension “should be part of the conversation.”
This article appears in the Oct. 24, 2012, edition of National Journal Daily.