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How Will the Fiscal Cliff Saga Play Out? A Look At Four Scenarios How Will the Fiscal Cliff Saga Play Out? A Look At Four Scenarios

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NJ Daily / CONGRESS

How Will the Fiscal Cliff Saga Play Out? A Look At Four Scenarios

House Speaker John Boehner of Ohio arrives to speak on the fiscal cliff negotiations on Capitol Hill in Washington, Wednesday, Dec. 19, 2012. (AP Photo/Jacquelyn Martin)

photo of Billy House
December 19, 2012

The arrival by Christmas of some beautifully wrapped “grand bargain” to avert the looming fiscal-cliff crisis is now remote. But various scenarios remain as to how this all could still play out before the new year, including the scope of any deal President Obama and congressional Republicans might reach by then.

Here are some potential outcomes. All come with the proviso that the usual legislative process to approve a measure in Washington can give way to procedural shortcuts whenever a two-year congressional session reaches its frenzied final days.

Grand Bargain

In private talks over recent days, the White House and House Speaker John Boehner, R-Ohio, have been narrowing their differences on revenues and spending—even if they have been publicly skirmishing. Still, a grand bargain to cut the deficit by $4 trillion over 10 years—which would include compromises on both sides on spending and tax issues—was a long shot at the start of the lame-duck session, and it seems even more so now. But perhaps only Obama and Boehner really know for sure.

 

No Deal

This worst-case scenario—that Obama and congressional Republicans remain deadlocked and don’t reach any kind of bargain in time—is probably also the least likely. Failure to extend the lowered income-tax rates enacted under former President George W. Bush and prevent the $109 billion in automatic “sequester” spending cuts set to kick in on Jan. 2 is still a feared possibility, as many economists see the combination as something that would seriously harm the nation’s already fragile economy.

The nation also faces the year-end expiration of unemployment insurance, the expansion of the alternative minimum tax (which would hit millions of middle- and upper-class families), and the expiration of the payroll-tax holiday that reduces a worker’s Social Security taxes. The Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit, and the American Opportunity Credit also will revert to lower levels. There is a chance the incoming Congress could act to reinstate some of these tax breaks.

Unhappy Compromise

This scenario is not a grand deal by any means, but one that could include a compromise to preserve the current tax rates for annual household incomes somewhere under the $1 million top level set in Boehner’s so-called Plan B alternative and also include Obama’s latest proposal to extend Bush-era tax rates for income below $400,000. (House Republicans as of Wednesday night were still moving to hold a vote on Boehner’s plan on Thursday night, but Democratic leaders in the Senate have said that measure will not advance in their chamber and the White House says Obama would veto it.) Along with a compromise on tax rates, this scenario might include delay of some of the sequester cuts.

There could even be time this week for such a limited bargain. A member with close ties to GOP leadership says rank-and-file Republicans have been advised to be prepared to stay through Saturday and Sunday, before planning their departures for Christmas. That does not mean this type of compromise would have to be consummated by then. Drafting legislative language for a compromise focusing mostly just on the expiring tax rates could be ready in just a matter of days, or even faster, after lawmakers return.

Kick the Can

This is the most likely scenario, based on the belief that lawmakers still have no intention of letting the sequester cuts begin on Jan. 2 or letting all of the lowered tax rates expire. This idea could involve a plan to both compromise on tax rates and make a down payment worth just some targeted portion of the $109 billion in sequestration cuts, and then establish a framework for additional cuts.

Far from being a grand, comprehensive plan, this would be much more of a temporary fix that pushes longer-term policy decisions to the next Congress, which already will have to do battle over an increase in the nation’s debt limit. How swiftly the legislative language for this approach can be readied for floor action will depend on how detailed it gets. But normal legislative procedural hurdles are not seen as a potential problem if both parties are on board.

 

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