Developments Near the Edge of the Fiscal Cliff


By Ron Kramer

After a late afternoon meeting with President Obama on Thursday, December 13, House Speaker John Boehner left Washington for his home state of Ohio, seemingly no closer to a deal. However, some new developments in the negotiations to avoid the fiscal cliff were reported over the weekend.

Several news sources have reported that Speaker Boehner has proposed raising tax rates for top wage earners, including those with incomes of $1 million or more annually beginning on January 1, if President Obama agrees to major entitlement cuts. This news is significant because it is the first time Speaker Boehner has offered to increase the marginal tax rates for any income group.

Reportedly, President Obama and Speaker Boehner spoke via telephone Friday, December 14 following their nearly hour long face-to-face meeting at the White House on Thursday. This flurry of discussions may indicate that some progress is being made on the fiscal cliff negotiations, but it is unlikely that they are close to a deal.

If Speaker Boehner’s offer on tax rates is confirmed, then it represents a significant move toward President Obama’s position that tax rates on the wealthy be increased. However, the Republican proposal would not be acceptable to Democrats because of the estimated level of tax revenue, the proposed changes to entitlement programs and the absence of an extension for unemployment insurance benefits. The Democrats stand on entitlement cuts was made clear by House Minority Leader Nancy Pelosi, D-Calif., on December 13. She said raising the age of Medicare eligibility from 65 to 67 years old was a nonstarter, "Don’t even think about raising the Medicare [eligibility] age. We are not throwing America’s seniors over the cliff to give a tax cut to the wealthiest people in America."

In addition, President Obama is demanding that any deal include an increase in the debt ceiling. This will be a big sticking point since Republicans have indicated that they will not agree to raise the U.S. debt limit as part of any agreement to avoid the fiscal cliff.

Timing for a Deal
Congress adjourns for the Christmas holidays on December 21. Accordingly, December 21 is the last day that Congress can vote on a deal and head home for the holidays through New Year’s. Unless the deal is done by December 21, members of Congress will have to return to Washington during the week between Christmas and New Year’s. Realistically, Speaker Boehner and President Obama would have to reach any agreement by December 17 in order to allow time for a bill to be written, read and voted on in both chambers before a recess. It is unlikely that this will happen.

If President Obama and Speaker Boehner can reach an agreement during the week beginning December 17, Congress could sign off on a bill and send it to the President for his signature in the week between Christmas and New Year’s.

Will the Fiscal Cliff Turn into Just a Slippery Slope?

It seems unlikely that both sides will reach a compromise before December 31. Instead, it is more probable that Congress will return in early January 2013 to work out their differences. Hopefully, the framework for any deal can be sufficiently hammered out by December 31 to avoid the dire consequences of going over the fiscal cliff.

A clear plan going into 2013 can turn the fiscal cliff into nothing more than a slippery slope. Will we get a deal?

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