Five Key Players Who Can Throw Us Over the Fiscal Cliff
Business + Economy

Five Key Players Who Can Throw Us Over the Fiscal Cliff

iStockphoto/Reuters/The Fiscal Times

As the presidential election campaign grinds its way into November, Republican and Democratic lawmakers are busily hammering their own pitons into the fiscal cliff -- staking out routes that could either force compromise or snap the economy’s safety lines.

The politics are as steep as the economic consequences. The $660 billion jumble of expiring tax breaks and automatic spending cuts scheduled to take effect in early January  threaten to shove the country back into recession—a downturn that may be gradual or unexpectedly sudden. The jockeying for position has only increased the uncertainty of what exactly will happen during the lame duck Congress after the Nov. 6 election.

The two parties’ profound differences over economic and tax policy will be front and center tonight when Vice President Joe Biden and Republican vice presidential nominee Paul Ryan meet in Danville, Ky., for a nationally televised debate. With the outcome of the race between President Obama and Republican Mitt Romney now very much in doubt, political leaders back in Washington have begun taking strong positions on spending, entitlements and tax reform in anticipation of a showdown after the election. Who does the negotiating matters almost as much as what the terms of the deal are—and plenty of lawmakers are vying to star in this particular drama.

“Given the size and complexity and the time requirements, you can’t afford to make  the circle  too big or nothing is ever going to get done,” said Jim Manley, the former press secretary for Senate Majority Leader Harry Reid, D-Nev.

Sen. Chuck Schumer, D-N.Y. a key ally of Reid’s, drilled into the cliff’s ideological divide on Tuesday. To reduce the deficit, the Senate’s third-ranking Democrat called for both higher tax rates on wealthy Americans and closing tax loopholes, dangling in return for Republicans the possibility of cutting Medicare expenses by “hundreds of billions of dollars.”

Senate Minority Leader Mitch McConnell, R-Ky., quickly rejected the offer as a “plan to hold the economy hostage to massive, job-killing tax hikes.” Separately, Sen. Mark Warner, D-Va., is convening a bipartisan “gang” of eight Senate deficit hawks to broker a pact of their own.

The lower tax rates enacted during the administration of former president George W. Bush are the main sticking points in negotiations. President Obama would only continue them for families earning less than $250,000, while Republican nominee Mitt Romney plans to reduce the rates further.

Cut through the posturing and much hangs with five key players during the weeks of the lame duck session—right before the government would clamber over the crest of the fiscal cliff in 2013.

House Speaker John Boehner – As one of the few leaders practically guaranteed to hold the same position after the election, the Ohio Republican favors extending all of the breaks for one year and any increase to the debt ceiling must be offset by spending cuts. Getting a lame duck deal would be “difficult,” Boehner recently told Politico, and “frankly, I'm not sure it's the right thing to do -- have a lot of retiring members and defeated members voting on really big bills."

Treasury Secretary Tim Geithner — Along with White House chief of staff Jack Lew, Geithner will be among the key negotiators if Obama gets reelected. He’s called for laying a foundation in the closing weeks of 2012 to sidestep the cliff. He’s already holding closed-door discussions with House Ways and Means Chairman David Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont.

Senate Majority Leader Harry Reid – The Nevada Democrat says he’ll only agree to a deal that increases taxes on high-income Americans. “I do not believe that we are going to go over the fiscal cliff,” Reid, who favors a long-term deal, told reporters last month.

Senate Minority Leader Mitch McConnell – The Kentucky Republican wants all the Bush-era tax rates extended for a year as broader tax reform gets hashed out—and the sequester on spending rejiggered so that the military is spared $50 billion  of cuts next year.

House Minority Leader Nancy Pelosi -- Protecting Medicare—a $550 billion entitlement— is the top priority of the California Democrat, who opposes the Republican plan to segue it into a voucher-style program. “Does anyone have a question on the most important issue facing the American people?” Pelosi told reporters earlier this month. “The survival of Medicare. And if you don’t think it’s important just think of granny moving into the den on one of those adjustable beds when they have to leave the nursing home.”

That’s a frightening set of differences to overcome. Boehner pooh-poohs using lame duck compromise to avoid edging off the cliff. Tax hikes are necessary for Reid, yet McConnell abhors them. And Pelosi is committed to shielding Medicare—whose growth drives the deficit—from dramatic overhauls.

Geithner prefers to talk publicly about how the negotiations should proceed, instead of the actual state of play. “It would seem to be a remarkable thing for this country at this moment in history to say we can’t solve the problem, we can’t find principled compromise,” he told Bloomberg TV in August. “And so we’re going to put the country through wrenching trauma as a way to force political consensus. “
All of that enhances the sense of uncertainty as the clock ticks down.

“People want a deal, but nobody has the foggiest idea of what that deal would look like,” said Steve Bell, a senior staffer with the Bipartisan Policy Center and former Republican Senate aide. “I just wonder after all the debate and after all the hard and fast positions they’re going to take… whether they can come back and within 45 days reverse those decisions” in order to reach a compromise.

For Warner’s group to be effective, it not only has to establish a consensus that’s been elusive in the past but also design a compromise that passes muster with skeptical party leaders. Reid has little interest in ceding power to an ad hoc group of Democratic and Republican senators, and others view the newly constituted “Gang of Eight” as a distraction or sideshow.

“It doesn’t have to be a sideshow, but in order for it to be the main attraction, they’re going to have to agree on something and propose something,” said William Galston, a former policy director for President Bill Clinton. “Up until now they haven’t been able to. So they will be a sideshow if they’re just a seminar group.”

And if the Democrats insist on greater tax revenues, they’ll meet an immovable Republican blockade in the House that considers all net tax increases as a drag on economic growth.
“I don’t care what the electoral outcome is,” said J.D. Foster, an economist with the conservative Heritage Foundation, “the House of Representatives is not going to vote for anything that raises taxes further.”