McConnell Pushed Into U.S. Fiscal Fight as Deadline Nears

Dec. 27 (Bloomberg) -- Hans Nichols reports on the continuing fiscal cliff negotiations. He speaks on Bloomberg Television's "Bloomberg Surveillance." (Source: Bloomberg)

Mitch McConnell, the Senate minority leader who has stayed largely outside the U.S. budget fight this year, will be thrust into prominence just five days before the deadline for tax increases and spending cuts.

After the House of Representatives failed to act and the Treasury Department said yesterday it will start taking special measures now to avoid breaking the debt ceiling, McConnell’s next move may influence whether more than $600 billion in tax increases and spending cuts begin in January. President Barack Obama is pressing for lawmakers to craft an interim deal to avert the so-called fiscal cliff as senators return to Washington today.

Should Democrats, who control the Senate, heed Obama’s call, McConnell will choose from three options: using his legislative experience to help forge a bipartisan deal, wielding his power to block a proposal by Democratic Majority Leader Harry Reid from reaching a vote, or letting Democrats advance their own plan without having to endorse it.

“His instincts and his background have always been to engage more in the legislative bargaining and deal-making,” said Stephen Voss, associate professor of political science at the University of Kentucky in Lexington. Still, “there are lots of pressures that encourage him to represent the more conservative wing of the Republican Party in these negotiations, and we’ve seen that,” Voss said.

Photographer: Tom Williams/CQ Roll Call/Getty Images

Senate Minority Leader Mitch McConnell. Close

Senate Minority Leader Mitch McConnell.

Close
Open
Photographer: Tom Williams/CQ Roll Call/Getty Images

Senate Minority Leader Mitch McConnell.

‘Bad Cop’

As McConnell prepares to seek a sixth term in 2014, the Kentucky Republican risks drawing a primary challenger if he supports raising taxes on anyone, giving him an incentive to be the “bad cop” who scoffs at Obama’s budget proposals, Voss said.

Whatever McConnell does, the House -- which balked at the tax-rate increases for top earners that Obama and Democrats say are needed in any deal -- would still need to approve any measure the Senate passes.

McConnell, 70, has called on the Senate to take up and consider changes to House-passed legislation that would extend the George W. Bush-era tax cuts for all income levels. He has argued that the Senate could try to alter that legislation to allow tax cuts to expire for top earners, as Democrats advocate.

Waiting for Reid

McConnell spokesman Don Stewart said in an e-mail today that Obama telephoned the minority leader late yesterday, and that it was his first call from a Democrat on the budget since Thanksgiving.

“The leader is happy to review what the President has in mind, but to date, the Senate Democrat majority has not put forward a plan,” Stewart said. “When they do, members on both sides of the aisle will review the legislation and make decisions on how best to proceed.”

Obama also spoke with Reid, House Speaker John Boehner, and House Minority Leader Nancy Pelosi to receive an update on the negotiations, said Amy Brundage, a White House spokeswoman.

Boehner spokesman Brendan Buck said in a message posted on Twitter that the speaker “told the president yesterday that the Senate must now act. The House has already done so to avert the entire fiscal cliff.”

Reid, a Nevada Democrat, today on the Senate floor urged Boehner to allow a vote on a bill the Senate passed in July that would extend income tax cuts for one year for individual income up to $200,000 and income of married couples up to $250,000. Reid said House Democrats and some Republicans would join to pass such a plan.

Bill’s Complications

The bill the Senate passed in July has complications. The Constitution requires tax measures to be originated in the House, and this measure started in the Senate. And it doesn’t address the automatic spending cuts, unemployment benefits, the estate tax and a number of other issues with Dec. 31 deadlines.

The American public and the financial markets increasingly are concerned that Congress may be unable to get something done soon enough.

A Gallup poll taken Dec. 21-22 showed 50 percent of respondents saying it was likely and 48 percent saying it was unlikely that Obama and Congress will avoid the tax increases and spending cuts. In a Gallup survey taken a week earlier, 57 percent said they expected a deal while 40 percent didn’t.

The latest Gallup poll of 1,076 adults had a margin of error of plus or minus four percentage points.

Market Reaction

Stocks fell and bonds rose today. The Standard & Poor’s 500 Index dropped 0.7 percent to 1,409.26 at 11:30 a.m. in New York. The Dow Jones Industrial Average lost 81.38 points, or 0.6 percent, to 13,033.21 today. Consumer confidence also declined more than forecast.

The benchmark 10-year note yield fell three basis points, or 0.03 percentage point, to 1.72 percent at 11:23 a.m. in New York, according to Bloomberg Bond Trader prices.

Another sticking point in the budget negotiations has been Democrats’ demand that any year-end deal also raise the federal debt ceiling.

In a letter to Congress yesterday aimed at intensifying pressure on lawmakers to reach a deal, U.S. Treasury Secretary Timothy Geithner said the federal debt limit will be reached on Dec. 31 and his department will begin using “extraordinary measures” to finance $200 billion in deficits into early 2013.

Saying that such efforts that “would normally last about two months, Geithner cautioned that ‘‘given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.’’

Debt Limit

The approaching need for Congress to raise the debt ceiling sets up yet another legislative battle in which McConnell and congressional Republicans are viewed as having leverage.

With less than a week before the end of the year, Representative Jim Himes, a Connecticut Democrat, said in a CNBC interview that there was ‘‘some chance’’ a deal could be reached in early January.

‘‘It is possible we get into the first week of January before there’s a something to vote on,’’ Himes said. ‘‘Congress has gotten used to doing things at the last minute, and it’s not exactly clear when the last minute is here.’’

McConnell was the architect last year of the proposal that, after a months-long standoff, became the basis of a last-minute agreement that kept the U.S. from defaulting on its debt. In 2010, he was central to negotiations with Obama that extended the Bush-era tax cuts to the Jan. 1 deadline.

‘‘McConnell enters the room as the cleaner, as the guy who fixes up the mess the others have left behind,’’ said John Pitney, a political scientist and professor at Claremont McKenna College in Claremont, California.

Not Knievel

Still, Pitney said McConnell is careful not ‘‘to take unnecessary risks’’ when he chooses to help broker a deal, adding, ‘‘No one has ever mistaken him for Evel Knievel,’’ the daredevil motorcyclist.

McConnell’s caution could help explain why the stalemated budget talks have occurred almost exclusively between Obama and Boehner, an Ohio Republican who has insisted that any plan he would bring to his chamber’s floor must be able to get enough Republican votes to pass.

McConnell, first elected to the Senate in 1984, has taken stances that sometimes put him at odds with the small-government wing of his party. He initially opposed calls from Senator Jim DeMint, a South Carolina Republican, and others to ban congressionally directed spending known as earmarks.

Grayson Endorsement

And in 2010 he endorsed Kentucky Secretary of State Trey Grayson over the Tea Party-backed candidate, Rand Paul, in the Republican primary for the state’s other Senate seat. Paul beat Grayson and joined the Senate in 2011.

Actress Ashley Judd, a Democrat, is among those mentioned in news stories in Kentucky as possible challengers to McConnell in 2014.

Boehner on Dec. 20 scrapped a plan he offered to allow higher tax rates on annual income above $1 million, saying it didn’t have enough support among House Republicans. He sent House members home that night, and no votes are scheduled for the rest of the year.

Republican House leaders will hold a conference call with their rank-and-file members today to discuss the path forward, according to a leadership aide who asked for anonymity to discuss planning issues.

Before leaving for vacation in Hawaii, Obama on Dec. 21 urged leaders of both parties to assemble an interim bill to keep taxes from rising on all except the top 2 percent of earners. The president, who returned to Washington today, also called for extending unemployment insurance for about 2 million Americans who will lose benefits in January, and for a commitment to dealing with spending cuts next year.

The Senate bill is S. 3412.

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.