Dec. 30 (Bloomberg) -- With two days left to stop a package of higher taxes and spending cuts neither party wants, Democrats and Republicans are searching for a deal as lawmakers gather in Washington and President Barack Obama presses his case on television today.
Senate Majority Leader Harry Reid, a Democrat, and Mitch McConnell, the chamber’s Republican leader, plan to brief party members in closed-door caucuses this afternoon on the status of private weekend talks between their staffs seeking an accord to avert the more than $600 billion in automatic tax increases and spending reductions set to start in January.
House Speaker John Boehner, an Ohio Republican, has called his chamber into session later today to be ready for possible action on avoiding the so-called fiscal cliff. The Senate also is convening.
The more discreet phase of negotiations yesterday capped weeks of on-again, off-again talks and political posturing by both sides since President Barack Obama won re-election on Nov. 6. Obama, after summoning congressional leaders to the White House on Dec. 28 and putting the onus for a deal on Reid and McConnell, said he was “modestly optimistic” the Jan. 1 fiscal cliff deadline would be avoided. Yesterday, the White House had no public comment.
With Democrats and Republicans at odds over whose tax cuts should get extended, whose should expire and which programs should be cut, Congress was poised in a best-case scenario to take the negotiations up to the last minute. Lawmakers and White House officials also were preparing for the prospect of no deal until after Jan. 1, and having to seek one in the new Congress that convenes on Jan. 3.
Obama was updated throughout the day as White House aides were in touch with congressional negotiators, said a White House official who wasn’t authorized to make a statement and spoke on condition of anonymity. The official declined to detail any of the discussions.
The president appears on NBC television’s “Meet the Press” today, in an interview taped yesterday, to continue to urge lawmakers to reach a broad bipartisan deal or, at the least, agree to a minimal fix that extends expiring tax cuts on annual household incomes up to $250,000 and continues some unemployment benefits.
Aides to Reid and McConnell declined to say how the staff talks were progressing. Pending questions included whether the two sides were closing in on a deal to extend tax cuts to a higher income level, such as $400,000 -- a threshold Obama has said he could accept -- or to address other expiring provisions affecting college students, low-income families, Medicare payments to doctors, milk prices, estate taxes and military spending.
Reid spokesman Adam Jentleson said that as of last night, his boss and McConnell hadn’t talked directly.
McConnell spokesman Don Stewart said no announcements about a deal, if one is reached, are likely to come before senators are briefed this afternoon.
Tax policy remains the most substantial divide in the dispute.
Republicans have resisted rate increases for any income level, maintaining that such a move would hurt the economy and hinder job creation -- especially by businesses that pay their taxes on their owners’ individual returns.
While the economy has shown resilience in the face of the fiscal threat, politicians are wary of reactions by the public, employers and the markets if a deal isn’t reached by the Jan. 1 deadline.
Impact on Taxpayers
Failure to address the expiring tax breaks, enacted under President George W. Bush, would mean heavier burdens on taxpayers during the coming filing season, on their regular paychecks and their 2013 tax bills. The nonpartisan Tax Policy Center in Washington estimates the average effect per taxpayer at $3,446 for 2013 if Congress does nothing.
The Standard & Poor’s 500 Index fell for a fifth day on Dec. 28, by 1.1 percent to 1,402.45 at 4 p.m. in New York. The benchmark Treasury 10-year yield declined four basis points, or 0.04 percentage point, to 1.7 percent at 5 p.m. in New York, according to Bloomberg Bond Trader.
Any last-minute deal wasn’t expected to address a debt ceiling agreement, making the limit on U.S. borrowing authority the next major issue forcing a fiscal debate. The government will hit the $16.4 trillion limit tomorrow, and the Treasury Department will begin using so-called extraordinary measures to finance about $200 billion of deficits into 2013. That would typically be enough to last about two months.
Even if McConnell and Reid do strike an accord, getting it through both congressional chambers in time to meet the year-end deadline would be difficult.
Under the Senate rules, unanimous consent in the 100-member chamber is needed to move ahead with an expedited vote. The objection of a single senator could stall action.
In the House, Boehner will likely need to rely on a mix of Democratic as well as Republican votes to pass any bipartisan Senate legislation.
Boehner may be hesitant to work with Democrats to advance a measure that raises taxes just days before he has to stand for re-election as speaker in the next Congress.
Focus turned to the Senate as the chamber that most likely would act first on averting the fiscal cliff after Boehner on Dec. 20 abruptly scrapped plans for a House a vote on his proposal to let taxes rise on income over $1 million while extending the current rates for all others.
With Democrats united in opposition, Boehner said he couldn’t muster the votes from within Republicans’ ranks to pass the measure.
Amid the fiscal dispute that the nonpartisan Congressional Budget Office has said could trigger a downturn, car sales and home construction are reaching levels not seen since the December 2007 start of the recession that ended in June 2009.
Residential real estate, which helped trigger that downturn, is rebounding. Existing homes sold at their strongest pace in more than two years in November, and building permits reached a four-year high. Companies including Toll Brothers Inc. and KB Home are competing for buildable lots and raising prices.
“We’re chugging along. We could still get derailed by some of this stuff but I think we’ve seen a virtuous cycle building in housing,” said Terry Sheehan, an economic analyst at Stone & McCarthy Research in Princeton, New Jersey. “The economy is not doing too badly.”
Even manufacturing, which struggled during much of 2012, showed signs of stabilizing. Americans looked past the fiscal policy debate to push car sales to a four-year high in November as industrial production jumped by the most in two years and orders for business equipment climbed for a second month.
Workers’ first paychecks in January likely will be smaller than in 2012 because the 2-percentage-point cut in the payroll tax is expiring. For someone earning $50,000 a year and being paid twice a month, that’s $41.67 per paycheck.
Lawmakers in both parties want the payroll tax cut to expire, and attempts by Obama to extend it or replace it with something similar failed to gain momentum.
The expiring income tax cuts also would make 2013 paychecks smaller because withholding would increase to reflect the higher rates. The top rate would increase to 39.6 percent from 35 percent, the bottom rate to 15 percent from 10 percent.
The Internal Revenue Service hasn’t given employers guidance on how to withhold taxes in 2013 because of the uncertainty in Congress.
Lawmakers also haven’t addressed a provision for tax year 2012 that prevents the alternative minimum tax from expanding to hit 32 million households, up from 4 million in 2011. If Congress does nothing, the IRS would delay the beginning of tax filing from January until at least late March for as many as 100 million households, or about two-thirds of the total.
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