Reid Predicts Deal to Avoid ‘Fiscal Cliff’ by End of Year

Senate Majority Leader Harry Reid predicted Congress will reach a deal after the Nov. 6 election to avert hundreds of billions of dollars in tax increases and spending cuts known as the “fiscal cliff” set to begin in January.

“I do not believe that we are going to go over the fiscal cliff,” Reid, a Nevada Democrat, told reporters in Washington today, adding that he opposed a short-term deal. “I’m in favor of long term.”

Unless Congress acts, $1.2 trillion in automatic spending cuts will begin in January and the George W. Bush-era tax cuts will expire Dec. 31. The Congressional Budget Office estimates the fiscal changes would amount to $607 billion in tax increases and spending reductions for 2013 alone. Democrats propose letting tax cuts expire for top earners, while Republicans want to extend the tax cuts for everyone and back spending reductions instead of more tax revenue.

Congress is set to leave town at the end of the week to campaign for the election without resolving how to address the tax cuts or spending reductions.

Senator Richard Durbin of Illinois, a Democrat, told reporters today that the partisan divide in Congress that has impeded a deal will diminish after the election.

‘Holding Back’

“There is a sentiment moving towards a bipartisan solution, and we have to wait for the outcome of the election,” Durbin said. “People are obviously holding back until they see that.”

Durbin is a member of the bipartisan Gang of Six that last year crafted a deficit-reduction framework based on the failed 2010 Simpson-Bowles commission. The group has since expanded to include Senator Michael Bennet, a Colorado Democrat, and Senator Lamar Alexander, a Tennessee Republican, among others. Its members say they want to develop a proposal to galvanize senators when Congress returns in mid-November.

Senator Ben Cardin, a Maryland Democrat, said discussions are under way among senators about how to avert the fiscal cliff.

“The Senate probably has more consensus on the need for us to come together than the House and I think there’s a lot of us on both sides of the aisle trying to figure out where we can,” Cardin said in an interview.

Top Earners

Former Senator Byron Dorgan, a North Dakota Democrat, said the relatively low tax rates paid by billionaire Warren Buffett and Republican presidential nominee Mitt Romney have crystallized debate over top earners’ taxes and made it easier for moderate Democrats and Democrats in Republican-leaning states to support raising taxes on top earners.

“There’s been such debate about it,” said Dorgan, who didn’t seek re-election in 2010 and is now a senior policy adviser at Arent Fox LLP in Washington. “The Romney example is so clear. I think everybody in the country now understands it.”

Some Republicans say the divide between the parties on tax policy will continue to be a barrier to an agreement, regardless of the election’s outcome.

“You get back to the same old issue that we haven’t been able to bridge the gap, that has prevented agreement,” said Jon Gans, a former senior adviser to Senator Jon Kyl, an Arizona Republican. Gans is now a managing director at the Glover Park Group, a communications firm in Washington.

Alternative Minimum Tax

Some expiring tax provisions, including language to prevent more people from paying the alternative minimum tax, will affect the 2012 tax filing season that is scheduled to begin in January 2013.

“Obviously, end of year is critical for that,” said Representative Dave Camp, a Michigan Republican and chairman of the House Ways and Means Committee. Camp led a closed-door, bipartisan meeting of the committee today.

House Speaker John Boehner, an Ohio Republican, said on Sept. 11 that he was “not confident at all” that Congress would reach a deal on avoiding the spending cuts set to take effect in January.

Also today, the U.S. Conference of Mayors sent a letter urging congressional leaders to head off the automatic federal spending reductions. The cuts would force deeper reductions in city workforces already slashed since the recession and deal a new blow to still-struggling economies, the letter said.

“This is the wrong time to send a negative economic jolt,” Minneapolis Mayor R.T. Rybak told reporters in Washington.

In Philadelphia, the spending cuts would eliminate 400 slots in early childhood education programs, curb counseling for homeowners facing foreclosure and take away money used to eliminate lead from aging dwellings, Mayor Michael Nutter said.

Atlanta Mayor Kasim Reed said the cuts would jeopardize the jobs of 125 police and firefighters, as well as funding for a $100 million streetcar project.

To contact the reporters on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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