When President Barack Obama and Congress return to Washington later this week, the countdown to the fiscal cliff will be measured in days — yet no one really knows how, when or even whether an agreement might be reached.
Sorting out the scenarios is like trying to assemble a 100-piece puzzle on deadline. About the only decent bet is the one offered by Sen. Joe Lieberman, a Connecticut independent:
“We’re going to spend New Year’s Eve here, I believe,” he told CNN on Sunday.
There are four general ways the drama likely is to unfold: no deal at all, the long-elusive big deal, consideration of legislation that one chamber already passed or a small time-buying accord that would require further negotiations.
If no alternative is adopted, Bush-era income tax cuts will expire at the end of the year. On Jan. 2, $109 billion in automatic spending cuts would take effect, and half of them would involve defense.
Those are just the big items, however.
Extended unemployment benefits for an estimated 2.1 million Americans begin expiring at the end of this month. Also ending would be the 2 percentage-point Social Security payroll-tax cut and the alternative minimum tax “patch.” The AMT, originally aimed at wealthy taxpayers who avoided high taxes with deductions, wasn’t indexed to inflation, and therefore it could affect 31 million people unless Congress approves a change.
Also looming is the annual battle over the “doc fix,” or Medicare payments to doctors. If no action is taken, those payments might be cut by about 27 percent.
Here are the likely potential scenarios:
Few on Capitol Hill will say it publicly, but there’s a lot of talk about how each side can benefit politically if the stalemate continues past Jan. 1. And if the markets don’t react once the cliff is reached, there might be even less incentive to get a quick deal.
There also might be a new incentive to act. Since higher tax rates would go into effect, getting a tax deal might become easier. Lawmakers could argue that they’re now cutting taxes for lower- and middle-income people while keeping them intact for the wealthy.
Obama and Boehner weren’t that far apart when they traded offers last week, and for all the sniping there are messages of hope imbedded in the remarks from both sides.
There are vehicles available to lawmakers that would enable them to move quickly. The House passed a measure in August to continue all the Bush income-tax rates for a year. The Senate adopted a measure in July to maintain those rates for all but individuals who earn more than $200,000 a year and families that make more than $250,000, the same limits Obama backed.
There are more “fiscal crises” on the horizon: A new debt-limit ceiling likely is to be needed in mid-February and current fiscal-year spending runs out March 27.
Congress and the president might extend the tax rates or avoid some spending cuts and couple that with one of the other upcoming crises in the hope that a big deal could be worked out later. Such a smaller deal also would be easier to get through Congress before Jan. 1.
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