Right after Election Day, Congress and the president will face a gargantuan problem: By Dec. 31, drastic tax increases and spending cuts will kick in to suck about $607 billion from the economy. The Congressional Budget office has said the combination could push the U.S. back into a recession. It would also result in 83 percent of U.S. households facing an average $3,701 in tax increases, according to the Tax Policy Center.
Resolving the problem before the deadline, will of course be up to the very people who brought the country to the brink of default on its debt last summer and almost shut down the government at year-end because they couldn’t agree on whether to extend payroll tax cuts everyone claimed to support. With a track record like that, no one feels confident. And as my Bloomberg News colleague Richard Rubin reported Monday, lawmakers are nowhere near a deal. Representative Henry Waxman (D-Calif.) told Rubin that he and other lawmakers “don’t expect much from Congress” until after the election.
Yet there are signs that a compromise on Taxmageddon could be reached.
One hint is a comment made on television last week by Senator Lindsey Graham (R-S.C.). Graham told ABC he’d be willing to go against his own pledge never to raise taxes. A majority of Republicans has signed this pledge, which was espoused by anti-tax crusader Grover Norquist. It has come to be treated as dogma by Republicans who swept the House in 2010. The government possesses limited tools to get out of its fiscal mess—tax or spend—and unwillingness to cave on one of them has left both sides paralyzed.
“We are so far in debt that if you don’t give up some ideological ground, the country sinks,” Graham said. He seemed to suggest that he’d allow the expiration of the Bush tax cuts, which contributed $1.8 trillion to the deficit over the past decade. “When you talk about eliminating deductions and tax credits for the few, at the expense of the many,” said Graham, “I think over time the Republican Party’s position is going to shift.”
Graham isn’t the only one who has changed his mind about the pledge, but he is one of the most prominent. A number of additional members of Congress, citing the urgency of the country’s fiscal situation, have shifted positions as well.
These shifts probably won’t avert the drawn-out fight in December that everyone in Washington is bracing for. But they are a sign worth paying attention to: They signal that more Republicans are growing weary of the stalemate, and that on the biggest issues, some of them are willing to bend.