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No deal in sight as deadline for fiscal deal nears

President Barack Obama waves as he boards Air Force One to return to Washington, at Honolulu Joint Base Pearl Harbor-Hickam in Honolulu, after spending Christmas with his family in Hawaii, Wednesday, Dec. 26, 2012. (AP Photo/GERALD HERBERT)

By JIM KUHNHENN,
The Associated Press

12/27/2012

WASHINGTON — A last-gasp effort Thursday to avoid automatic tax increases and spending cuts got off on the same convulsive, partisan tone that marked congressional attempts to resolve the impasse before lawmakers left Washington to go home for Christmas.

With a Dec. 31 deadline for an agreement to avert the so-called "fiscal cliff" rapidly approaching, party leaders in both the House and Senate were back in the Capitol, each demanding the other side take the initiative. The new flare-up happened despite a round of calls that President Barack Obama made to congressional leaders by phone Wednesday night from Hawaii before he boarded Air Force One to head home from vacation.

Obama's plane landed in late morning at a suburban Maryland Air Force base, not long after Majority Leader Harry Reid took to the Senate floor to chastise House Republicans who last week opposed Speaker John Boehner's efforts to pass a narrowly crafted bill. Boehner's "Plan B" would have raised tax rates only on the very wealthiest Americans. But the opposition within his own party caucus forced the Ohio Republican to cancel a vote on the bill.

Reid charged Thursday that the House was "being operated with a dictatorship of the speaker."

"John Boehner seems to care more about keeping his speakership than about keeping the nation on sound financial footing," the Nevada Democrat said.

Upon his return from a brief vacation, Obama was facing what has become a familiar 11th-hour scenario — one the GOP says is his fault — and even a stopgap solution was in doubt.

Without congressional action, current tax rates will expire on Dec. 31, resulting in a $536 billion tax increase that would touch nearly all Americans. Moreover, the military and other federal departments would have to cut $110 billion in spending.

But while economists have warned about the economic impact of tax hikes and spending cuts of that magnitude, both sides are increasingly proceeding as if Congress could still act in January in time to retroactively counter the effect on most taxpayers and government agencies without causing economic harm.

The issue has been Obama's first test of muscle after his re-election in November. Obama ran on a theme of having the wealthy pay a greater share toward deficit reduction with a focus on raising upper tax rates for individuals earning $200,000 or more and couples making more than $250,000. In negotiations with Boehner toward a deficit reduction plan of more than $2 trillion over 10 years, he offered to increase that threshold to $400,000, but those negotiations collapsed.

House GOP leaders this week put the burden on Reid, urging him in a statement Wednesday to take up a House-passed bill that would extend current tax rates to all taxpayers, a bill Obama has vowed to veto.

The White House said Obama, before leaving Hawaii, called Boehner, Reid, Senate Minority Leader Mitch McConnell and House Minority Leader Nancy Pelosi. The White House statement said the president got an update on the "fiscal negotiations," but offered no detail on who, exactly, was negotiating and whether those talks were getting anywhere.

McConnell's office said Obama's phone call was the first from a Democrat on the fiscal cliff since Thanksgiving.

Last Friday, Obama and Reid voiced support for a proposal that would extend current rates to taxpayers with earnings up to $200,000 and families with earnings up to $250,000. Taxpayers above those thresholds would see their top rates rise. The proposal would have included extended aid to unemployed workers and some surgical cuts to avoid steeper and broader spending cuts.

For the Senate to act would require a commitment from McConnell not to demand a 60-vote margin to consider the legislation on the Senate floor. McConnell's office says it's too early to make such an assessment because Democrats have not put forward a specific plan and have been unclear on whether extended benefits for the unemployed would be paid for with cuts in other programs or on how it would deal with an expiring estate tax, among other issues.

The questions hanging over Washington Thursday centered on whether Reid would offer a specific piece of legislation, whether McConnell would allow it to proceed to a vote on the Senate floor and, if the Senate bill passed, whether Boehner would then call House lawmakers back to Washington to vote on it. All those issues remained unresolved, and success before the end of the year appeared a long shot at best.

Reid said the GOP-controlled House easily could have passed a White House-approved plan with a majority of Democratic votes and a few dozen Republican votes. But House leaders generally avoid such tactics, because they might alienate the Republican caucus and jeopardize the speaker's job.

The House has passed a Republican plan to avert the fiscal cliff, and the Senate has passed a Democratic version. Their deficit-reduction projections differ by hundreds of billions of dollars over 10 years.

Adding to the mix of developments pushing toward a "fiscal cliff," Treasury Secretary Timothy Geithner on Wednesday informed Congress that the government was on track to hit its borrowing limit on Monday and said he would take "extraordinary measures as authorized by law" to postpone a government default.

Still, he added, uncertainty about the outcome of negotiations over taxes and spending made it difficult to determine how much time those measures would buy.

Celadon