Senior lawmakers in both political parties predicted an end to a standoff on the U.S. fiscal cliff that threatens to yield $607 billion in tax increases and automatic spending cuts in January, while saying the details of a debt-cutting deal may come later.
Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he thinks lawmakers can reach a “framework agreement” directing tax and spending panels in Congress to craft a broad deal next year that cuts soaring budget deficits. At the same time, he said, they could agree now to a smaller package of spending cuts and some tax-code changes before the year is over.
If the legislative panels don’t act, all sides would have to agree to a fallback plan that would be more acceptable than the automatic approach that is sparking economic uncertainty, Conrad said yesterday on “Fox News Sunday.”
“I absolutely believe there is room for agreement,” Conrad said.
Senator Bob Corker, a Tennessee Republican, said he agrees there is little chance of the automatic policies occurring, and said Republicans are open to some tax increases if Democrats would be willing to embrace a broad reform of the Medicare to yield big cost savings. Short of a broad, long-term deal, he said lawmakers must at least move away from the approach of extending current policies by a few months and then revisiting the entire debate.
“I hope we’ll at least go substantially down the road toward solving the problem,” said Corker, who also appeared on the “Fox News Sunday” show.
Without new legislation, the $607 billion in tax increases and spending cuts -- evenly divided between military and domestic spending -- will take effect starting in January. The tax increases stem from expiration of the tax cuts put in place under President George W. Bush, while the automatic spending cuts were included in legislation last year to try to force both sides to agree on an alternative approach to curbing outlays.
With just weeks before the year’s end, it’s very unlikely Congress will be able to agree to the type of long-term “grand bargain” that has been elusive for well over a year, said Robert Bixby, executive director of the deficit-cutting Concord Coalition in Washington. At the same time, he said, it’s unlikely both sides will allow a post-election collapse of budget policy.
“They can’t enact the detailed legislation they need on entitlement and tax reform in the next couple of weeks,” Bixby said. “The real meaning of it won’t come together until next year.”
President Barack Obama and House Speaker John Boehner both spoke after the Nov. 6 elections about the need to avert the policy shifts in January, each expressing a willingness to compromise while also reiterating their previous positions.
Tax Cut Extension
Obama, claiming a mandate from voters after his Nov. 6 re-election, called for an immediate tax-cut extension for people earning less than $250,000 and insisted that top earners pay more. Boehner cited public support for the re-elected House Republican majority and said tax rates must not go up. They will meet at the White House Nov. 16, along with other top congressional leaders in both parties.
In his remarks last week, Boehner pointed to the possibility of closing tax loopholes to help generate more revenue and signaled his willingness to compromise to reach a resolution.
David Axelrod, a senior adviser to Obama’s re-election bid, said yesterday that Boehner’s comments were “encouraging.”
Boehner “said he wasn’t going to get into details about what he would or wouldn’t accept,” Axelrod said on the CBS “Face the Nation” program. “He didn’t want to foreclose discussions and that was a positive sign.” Axelrod added that the House speaker’s “rhetoric has been encouraging.”
Asked whether the debt problem can be solved by simply closing loopholes, Axelrod said he wouldn’t “pre-judge” the negotiations. He also said exit polls taken the day of Obama’s re-election support the president’s position on taxes. Axelrod said eliminating loopholes could be a part of a debt deal.
“I think that the Speaker’s comments have been encouraging and obviously there’s money to be gained by closing some of these loopholes and applying them to deficit reduction so I think there are a lot of ways to skin this cat so long as everybody comes with a positive, constructive attitude toward the task,” Axelrod said.
Democratic Senator Patty Murray said Republicans should accept some tax increases, and that Obama has a mandate to make the tax-code changes he advocates. She also reiterated earlier threats to let the nation go off the fiscal cliff if Republicans won’t budge.
“We just had an election where President Obama ran on that,” Murray, of Washington, said on ABC’s “This Week” program. “We increased our majority in the Senate with Democratic candidates who said that to solve this problem the wealthiest Americans have to pay their fair share, too.
“So if the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire and we’ll start over next year,” she said.
Automatic Spending Cuts
The automatic spending cuts, known as “sequestration,” total $1.2 trillion over 10 years from planned spending, including more than $500 billion from defense. They were part of the legislation last year that raised the federal debt ceiling, and were put in place in the event that a congressional “super committee” couldn’t agree on a specific debt-cutting plan. The efforts of that temporary panel collapsed late in 2011.
Concern that the global recovery will be slowed by a political deadlock over the fiscal changes, and about Greece’s ability to meet debt payments, contributed to declines in stocks last week, though U.S. indexes rose on Nov. 9 on a stronger-than-forecast consumer sentiment reading.
Last week, U.S. stocks had their biggest weekly decline since June as Obama’s re-election on Tuesday set up a budget showdown with the Republican-controlled House of Representatives.
All 10 groups in the Standard & Poor’s 500 Index dropped during the week. Utilities and phone companies fell the most amid concern the dividend tax may rise. Bank of America Corp. led financial shares down 3.1 percent and coal companies including Peabody Energy Corp. slid on bets Obama’s re-election will mean more regulation. Hospitals such as HCA Holdings Inc. rallied while insurers fell on speculation Obama will preserve the health-care overhaul he championed.
The S&P 500 dropped 2.4 percent to 1,379.85 for the week. The Dow Jones Industrial Average slipped 277.77 points, or 2.1 percent, to 12,815.39. While both gauges capped their worst week since June 1, they’re still up 9.7 percent and 4.9 percent, respectively, for the year.