Just in case Obama and Congress can’t negotiate a deal by the end of the year, Sens. Michael Bennet, D-Colo., and Lamar Alexander, R-Tenn., submitted an emergency backup plan to Senate leadership in a last ditch effort to keep the economy from tumbling as a result of year-end tax increases and spending cuts.
The backup plan would make a substantial down payment toward deficit reduction during the lame-duck session, create a streamlined process for reaching a broader deal next year and implement a default deficit-reduction plan if Congress still cannot break a stalemate in 2013, the Hill’s Alexander Bolton reports.
“It simply pushes the pause button on all the elements of the fiscal cliff, extends everything for a year and then gives us six months in which to reform entitlements and reform taxes and reduce the debt,” said Alexander.
Key parts of the plan, including the size and substance of the down payment, are still being negotiated. Under the current approach, Congress would have until mid-April to pass a broader deficit-reduction package.
If Congress failed to meet the April deadline, a backstop, similar to the automatic across the board spending cuts or sequestration built into last year’s debt-ceiling agreement, would take effect. Alexander and Bennet have not agreed on the details of the backstop, but ironically it was sequestration that helped get the government into the current fiscal cliff mess. - Read more at The Hill
FISCAL CLIFF TALKS OFF TO SHAKY START Congressional leaders emerged from a White House meeting with President Obama last Friday optimistic about prospects for negotiating a deal to avoid the fiscal cliff. But high level staffers charged with sketching the outlines of a possible compromise have made little progress since then, according to congressional aides.
“Democrats on the Hill say Republicans aren’t serious about crafting a deal that…Obama can accept,” Politico’s Jake Sherman, John Bresnahan and Carrie Budoff Brown report.
It seems neither side is willing to budge, as Rob Nabors, the White House’s chief legislative liaison and House Speaker John Boehner’s top aides sparred over taxes this week. . The Democrats want to extend the Bush-era tax cuts to everybody but the wealthiest two percent of Americans, who would see their top tax rate rise from 35 percent to 39.6 percent as well as the elimination of a host of other tax breaks. The GOP’s opening offer would preserve the current tax rates for all Americans, while keeping the estate tax at 2012 levels, changing the inflation calculator for entitlement programs, and authorizing a major overhaul of the tax code next year.
Fiscal cliff talks involving the president, House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., were put on hold through the Thanksgiving Day holiday, and are set to resume next week. - Read more at Politico
MUNI BONDS CAUGHT IN THE CLIFF CROSSHAIRS Investors should keep a close watch on municipal bonds as Congress and the White House step up fiscal cliff negotiations. One consequence of the negotiations could be eliminating some of the advantages of tax-free municipal bonds, which would deal a heavy blow to investors as well as local governments.
While Congress isn't expected to change municipal bonds’ tax-free status, industry experts think lawmakers could take a first step by limiting how much income investors could deduct under the popular tax break.
“If munis are taxable, their cost of finance goes up pretty significantly,” said Mike Nicholas, CEO of the Bond Dealers of America. “It’s simply that the product is less attractive to investors.” If they become less popular, it will result in higher borrowing costs for states and local governments, especially those in the weakest financial positions.
If the cost of borrowing for the other authorities and entities that use municipal finance rises, utilities costs for things like water and sewers could follow suit. “This is not just a tax on wealthy investors, it’s a tax on everyone,” he said. - Read more at CNBC
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