Dec. 24 (Bloomberg) -- Lawmakers said they were losing confidence that Congress and President Barack Obama can reach a deal within a week to avoid more than $600 billion in tax increases and spending cuts that could cause a U.S. recession.
“For the first time I feel it’s more likely that we will go off the cliff,” Senator Joseph Lieberman, a retiring Connecticut independent, said yesterday on CNN’s “State of the Union” program about the so-called fiscal cliff.
In the aftermath of House Speaker John Boehner’s failure to garner support from his caucus for “Plan B,” which would have extended tax cuts on incomes below $1 million, Lieberman said Senate leaders now must take charge of resolving the budget stalemate.
Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, “have the ability to put this together again and pass something” and “they can do some things that will avoid the worst consequences,” Lieberman said.
Lawmakers plan to return to Washington Dec. 27 to continue negotiating. Tax cuts signed into law by President George W. Bush and extended by Obama are scheduled to expire Jan. 1. In addition, automatic spending reductions to domestic and defense programs are scheduled to start next month.
Before leaving to spend the Christmas holiday on vacation with his family in Hawaii, Obama on Dec. 21 urged leaders of both parties to put together an interim bill to keep taxes from rising on middle-income Americans as they work on a more comprehensive package.
Failing to reach a budget deal would push the U.S. into recession for the first half of 2013, according to the nonpartisan Congressional Budget Office.
U.S. stock futures fell, indicating that the Standard & Poor’s 500 Index will extend its biggest tumble in five weeks, amid concern over the budget dispute.
Contracts on the S&P 500 expiring in March retreated 0.3 percent to 1,421.2 at 7:25 a.m. in New York. Dow Jones Industrial Average futures lost 37 points, or 0.3 percent, to 13,099. Trading on the New York Stock Exchange will close at 1 p.m. today for the Christmas holiday.
Senator Kent Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee, said on “Fox News Sunday” that it’s still possible to reach an agreement before the deadline. Obama and Boehner “were so close and then Speaker Boehner went off on Plan B. I never understood why, it had no prospect of succeeding.”
Republican Representative Mick Mulvaney of South Carolina said that the rejection of the Ohio Republican’s plan doesn’t change the probability that the fiscal provisions will be triggered because the Obama administration won’t compromise.
“Passing Plan B the other night would not have changed the outcome,” Mulvaney said on CNN. “We were going to go over the cliff then, we are going to go over the cliff now. You cannot negotiate with someone who does not want to negotiate.”
Representative Steven LaTourette, a nine-term Ohio Republican who is retiring after this session, said on CNN yesterday that Boehner dropped his proposal because it didn’t have broader support from members, and that he is more willing to allow disagreement than his predecessors were.
“The reason Speaker Boehner has trouble managing the House Republican Conference isn’t a lack of leadership,” LaTourette said. “It’s because we have a lot of divergent opinions and he lets people participate, which wasn’t the case in the past.”
Wyoming Senator John Barrasso, a member of the Republican leadership, said that the fiscal cliff probably will occur because President Obama believes doing so will hurt Republicans.
“I believe the president is eager to go over the cliff for political purposes,” Barrasso said on Fox yesterday. “He senses a victory at the bottom of the cliff. I think it hurts our country and hurts our economy.”
By splitting the difference between their rival plans, Obama and Boehner probably can agree on a sufficient package and avoid a contraction that causes a recession and increased unemployment, Conrad said.
“What we ought to do is take Speaker Boehner’s last offer, the president’s last offer, split the difference, and that would be a package of about $2.6 trillion,” Conrad said on Fox. “You couple that with the $1.1 trillion that’s already done. And, that would be close to the $4 trillion needed to stabilize the debt and begin to bring it down.”
Both Obama and Boehner have offered concessions in talks between the two, both in person and by telephone, since Dec. 5.
The president initially sought $1.6 trillion in new revenue, including a return to pre-Bush income tax rates for household income over $250,000 a year. The speaker first rejected any increase in tax rates, instead offering $800 billion in revenue by limiting unspecified tax exemptions.
After Boehner proposed raising taxes for households earning more than $1 million a year, Obama countered with a proposal to raise taxes on more than $400,000 of income.
Obama also has agreed to accept cuts in entitlement spending on programs such as Medicare, while Boehner has maintained that new taxes and spending cuts must be balanced on a one-to-one basis.
In sum, the two have approached the outlines of a plan that would raise about $1 trillion in tax revenue and cut about $1 trillion in spending. Any final agreement between the two, however, requires approval of a Republican-run House which has balked at tax increases and the Democratic-controlled Senate.
The Senate has passed legislation making the reductions permanent for income up to $250,000 for families and $200,000 for individuals, which would mean 98 percent of taxpayers and 97 percent of small businesses wouldn’t see a tax increase. Every Senate Republican voted against the package.
House Republicans have voted to extend all of the Bush tax cuts, which Democrats oppose. They’ve also passed legislation with no Democratic votes to cut food stamps and other domestic programs rather than defense.
The CBO said last month that extending the tax cuts for families earning $250,000 or less would boost the U.S. gross domestic product by 1.25 percent, while extending them for all taxpayers would boost the GDP by less than one-quarter of a percent more.
Obama and First Lady Michelle Obama attended a memorial service in Honolulu yesterday for U.S. Senator Daniel Inouye, who died Dec. 17 of respiratory complications. On Dec. 22, Obama golfed at a course at a Marine Corps base and at night went to dinner with his wife, other family members and friends.
Senator Mark Warner, a Virginia Democrat, said that lawmakers may still be able to agree on a scaled-down plan that gives them time to make a larger deal later.
“I think there’s unfortunately only going to be a small deal,” Warner said yesterday on “Face the Nation” on CBS. “We have to realize it’s going to take revenues, spending cuts and entitlement reform.”
Republican Senator Kay Bailey Hutchison of Texas also said on the same program that the president and Congress could work out a deal before the end of the year. Lawmakers may return after Christmas ready to negotiate, she said.
“I have an abiding faith that we will not leave,” said Hutchison, who is retiring. “We’ve got to do something to do a patch now, which, clearly, on Dec. 27, when Mark Warner and I go back, it is going to be a patch because in four days we can’t solve everything.”
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