January 1, 0001
A seemingly upbeat President Obama tried to keep the pressure on negotiators to finalize a fiscal cliff deal by midnight tonight as the rough contours of a bipartisan agreement began to emerge from the Senate.
Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-KY, appeared to have resolved some of the most contentious issue of the talks, including a plan to allow taxes to rise on incomes over $450,000 a year for couples and $400,000 a year for individuals. Estate taxes would rise to 40 percent for amounts above $5 million, and cap gains and dividends would rise to 23.8 percent for top earners.
Flanked by a group of middle-class people who served as political scenery, Obama suggested that while differences with Republicans over tax rates had largely been resolved, major obstacles remained over spending.
“For now, our most immediate priority is to stop taxes from going up on middle class families starting tomorrow,” Obama told his cheering supporters. “I think that is a modest goal that we can accomplish. Democrats and Republicans in Congress have to get this done, but they’re not there yet. . . . And one thing we can count on with respect to this Congress is that if there’s even one second left before you have to do what you’re supposed to do, they will use that last second.”
Some Republicans fumed that the president was grandstanding again as precious time was running out. However, McConnell said today that he and Biden were “very, very close” to a deal and confirmed that there was a deal on tax issues. The deal on future tax rates represents a major concession by both parties, with Obama abandoning his insistence that the Bush era tax cuts be extended only to those making under $250,000 a year and the Republicans for a time opposing tax rates on any Americans – including millionaires.
The emerging agreement would also spare 30 million Americans from the impact of the Alternative Minimum Tax, a tax originally designed to prevent the rich from escaping paying any income taxes. It would also extend unemployment insurance to 2 million Americans and preserve a number of popular individual and business tax credits, including credits for college tuition and research and development.
However, they were still hung up on how to go about delaying $100 billion of automatic cuts in defense and domestic spending set to kick in this week – with Republicans insisting on a brief three month postponement while the Democrats and White House insisting on blocking the cuts for a year or more.
The automatic spending cuts or sequestration are part of nearly $1.2 trillion of ten year savings mandated under the 2011 budget deal struck by the White House and Republicans to raise the debt ceiling, but both parties later came to regret that provision and have sought ways to cancel or blunt the impact of those cuts – especially in defense.
As the president spoke, Biden and McConnell were still nervously sweating the details of the potential agreement. The two were initially minor players in a bargain that Obama was supposed to hash out with House Speaker John Boehner. But as talks broke down and the distrust intensified, McConnell turned in something of a “Hail, Mary” to his former Senate colleague of 23 years. The duo last hashed out an agreement in 2011 to raise the debt ceiling—which in turn set the stage for the fiscal cliff.
Several prominent Republicans expressed support for an agreement that lifted tax rates on individuals with incomes above $400,000, since the alternative of an across-the-board hike would be far more devastating.
“You have to recognize that taxes are going up on every single American unless we act,” Rep. Tom Cole, R-Okla., told MSNBC. “I don’t consider making sure that doesn’t happen to 98 or 99 percent of the people a tax raise. Quite the opposite. It’s a permanent tax cut for almost every American. Having said that, yeah, I think the Senate will eventually come to a deal. We may technically go over the cliff tonight, but I think the thing will still be resolved in terms of taxes by the end of this Congress, that is by the morning of Jan. 3 at the latest.”
Rep. Jack Kingston, R-Ga., stressed on the same network that at least “30-50” Republicans would join with Democrats to support a compromise that comes out of the Senate.
However, getting any agreement through Congress will take serious salesmanship with Democrats. As it exists, the deal would not raise the $16.4 trillion debt limit that was breached today, giving GOP lawmakers a major bargaining chip to push for additional spending cuts in the weeks ahead. ” I’m frankly not enthusiastic about the compromise that’s being talked about today,” declared House Minority Whip Steny Hoyer, D-Md.
Unless the White House and Congress reach agreement before midnight on legislation to block the impact of automatic spending cuts and the scheduled repeal of generous Bush era tax cuts, Federal Reserve Chairman Ben Bernanke and other economists and business leaders predict a major blow to the economy that could send the country back into recession and lead to hundreds of thousands of layoffs.