Congress and President Obama have just 11 hours remaining until a series of tax rates and spending cuts known as the “fiscal cliff” take effect on January 1, 2013. If no solution is reached, tax rates will increase on nearly every Americans, and the spending cuts will have a dramatic effect on national defense and programs like Medicare. Here are the latest developments as of December 31, 2012 at 12:40 pm EST.
See also: An explanation of the fiscal cliff
Negotiators continue to try and configure a last minute deal and both sides are much closer than they have ever been before. Talking Points Memo reports that the latest deal would extend the Bush era tax rates to all incomes below $450,000. Republicans want to raise that level to $500,000 and Democrats would like it to be at $400,000. In addition, the deal would extend the lower estate tax rate. In exchange Republicans would agree to extend unemployment benefits and increase Medicare physician payments without offsetting spending cuts.
According to CNN, the sticking point in negotiations is how long to delay the $90 billion in spending cuts set to take effect tomorrow. Democrats are demanding those spending cuts be delayed one year, while Republicans are only willing to delay the spending cuts for three months.
Even if a deal is reached the deadline could pass if just one senator objects to the package. Any deal would need unanimous Senate consent in order to pass through the chamber under the current Senate rules. In addition, at least some House Republicans would have to agree to the tax increases in order for the package to pass through that chamber.
President Obama is expected to address the nation at 1:30 pm EST about the fiscal cliff, but at this point no major news network is reporting a completed deal.
Talking Points Memo reports that no significant player is left fighting for the payroll tax cut, which likely means the provision will expire come January 1. The payroll tax cut reduced the normal Social Security tax of 6.2 percent to 4.2 percent, which constitutes about $40 per paycheck for the average working American.
Boehner and House Republicans most recent proposal was referred to as "Plan B." The Republicans bill would have extended lower tax rates on everyone making less that $1 million in income per year. The Republicans bill would not extend the payroll tax cut or the earned tax credit, which means taxes would go up on many poor individuals. The Republican bill also would have replaced defense spending cuts with cuts to other discretionary programs. The problem for Republicans is that they could not even pass their own plan out of the House, as many of Boehner's own remembers rejected even his own very limited tax increase on the wealthy.
According to the Washington Post, President Obama's most recent offered raised the extension of the Bush era tax rates to an income level of $400,000, higher than the $250,000 level Obama first proposed. Speaker Boehner's most recent offer would raise rates for those making over $1 million in income. Obama's also offered to effectively lower the rate of inflation for Social Security, something Republicans have long requested as part of a any deal. Obama also increased his spending cuts offer and dropped his request for an extension of the payroll tax cut. However, Obama still wants $80 billion in new spending for infrastructure and unemployment benefits, and has also requested a two-year extension of the debt limit.
A Boehner spokesperson said that any new offer that includes more spending cuts is a move in the right direction, but also said the current offer is still too unbalanced in favor of tax increases over spending cuts.
CBS News reports that on December 10, 2012, that Obama shared a second proposal which slightly reduced tax revenue increases from $1.6 trillion to $1.4 trillion. Republicans also provided a new counter-offer, but no details were leaked about that proposal. A senior GOP House aid told CBS News that the President's new offer is still not acceptable.
On December 3, 2012 congressional Republicans sent their first counteroffer to President Obama on the fiscal cliff. The offer includes $800 billion in new tax revenue by closing loopholes and deductions, but does not specify which loopholes and deductions would be eliminated. In order to generate that amount of revenue popular provisions like the home mortgage interest deduction would likely have to be considered. The Republican plan would also raise the retirement age for Medicare, cut other health care programs, and cut benefits under Social Security to raise another $800 billion. The offer largely mimics the Simpson-Bowles proposal of November 2011, which was rejected at the time by both Congress and the White House.
The White House rejected the Republican offer within hours of its release, saying it did not meet the test of "balance" between new revenues and spending cuts. In addition, White House Press Secretary Jay Carney said the President would not sign a bill that does not raise tax rates on the top two percent of income earners.
On Fox News Sunday on December 2, 2012 Speaker John Boehner (R-OH) said he was "flabbergasted" by the White House's first proposal delivered by Treasury Secretary Timothy Geithner. President Obama’s opening bid included $1.6 trillion in additional tax revenue as well as over $400 billion in promised spending cuts. The tax revenue would come from increasing tax rates on the richest Americans, raising the tax rate on capital gains and dividends, as well as raising the estate tax. Obama also proposed extending the payroll tax cut or replacing it with another measure. Boehner said he told Geithner "you can't be serious."
There is now no hope for a "grand bargain" to prevent all of the tax increases and spending cuts to be implemented on January 1, 2013. Instead, the best Americans can now hope for is a small piece of legislation which prevents the most painful tax increases and spending cuts that will impact the poor and middle class. If Democrats can pass something in the Senate it will add a tremendous amount of pressure on Republicans in the House to concede in order to prevent the tax hikes. Any package raising taxes would need a significant amount of votes from Democratic representatives in order to pass through the House. In addition, Speaker Boehner would have to agree to bring the Senate legislation to the floor for a vote, something that would be very unpopular in his caucus. Given the developments over the last 24 hours, there is more hope for a deal now, but significant obstacles still remain.