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Edging Toward The Fiscal Cliff

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Lawmakers Have No Bill, No Deal And New Year's Eve On The Cliff

December 31st 2012

Cliff Face West Wales

Senate leaders are racing against the clock to reach a "fiscal cliff" deal the House and Senate can approve on New Year's Eve.

Leaders in the upper chamber narrowed their differences Sunday as Republicans agreed to drop a demand to curb cost-of-living increases to entitlement benefits, while Democrats showed flexibility on taxes. Yet after months of talks on ways to avoid the fiscal cliff of tax hikes and spending cuts at the end of 2012, House and Senate lawmakers find themselves approaching the new year without a bill to present to their members.

Significant differences remain over two key parts of a deal — the automatic spending cuts known as the sequester and the estate tax. Instead of working through the night, the Senate recessed at 7:27 p.m. Sunday with plans to reconvene Monday at 11:00 a.m., and the House recessed around the same time.

Senate Majority Leader Harry Reid (D-Nev.) told senators to expect an update on Monday morning. Senate Minority Leader Mitch McConnell's (R-Ky.) office said that he was engaged in discussions with Vice President Joe Biden on a deal. “The Leader and the VP continued their discussion late into the evening and will continue to work toward a solution,” said a spokesman. The House is waiting on the Senate to act and on Sunday positioned itself to vote immediately on any legislation that might pass the upper chamber. The House Rules Committee approved a rule that would allow the chamber to waive its usual three-day rule and immediately consider a Senate deal.

Reid told colleagues there is still time to reach a compromise to avoid across-the-board tax increases, and he instructed colleagues not to make New Year’s Eve plans.

“There is still significant distance between the two sides, but negotiations continue,” Reid said on the Senate floor. “There is still time left to reach an agreement, and we intend to continue negotiations.”

Reid has proposed raising the threshold for extending current tax rates on individual income to $360,000 and on family income to $450,000, according to Democratic senators who received a briefing from him. Republicans have countered with a proposal to raise the threshold for individuals to $450,000 and families to $550,000.

But the estate tax and the sequester, an automatic $109 billion cut to domestic and defense spending next year, remain outstanding issues.

Republicans want to extend the estate tax at its current 35 percent rate and exempt inheritances below $5 million.

Both sides want to halt the sequester but cannot agree how to offset its cost.

Democrats say the revenues collected from raising taxes on the wealthy should pay for the sequester, while many Republicans say that is a nonstarter.

“You cannot in my opinion turn the sequester off without paying for it,” said Sen. Bob Corker (R-Tenn.). “You can’t pay for it with revenues; those are cuts.”

But Republicans are not unified.

Sen. John McCain (Ariz.), the ranking Republican on the Armed Services Committee, said the first priority should be to postpone them. He vowed to vote against any deal that does not.

“That’s one of the biggest problems because obviously some of us cannot vote for anything that doesn’t address sequester because of national security,” he said. “The sequester in my view has got to be at least delayed.”


Senate Democratic Whip Dick Durbin (Ill.) said his side is still fighting to extend unemployment benefits.

Reid and Senate GOP Leader Mitch McConnell (Ky.) have made progress on other fronts. Democrats acknowledge they will not be able to include stimulus funding for transportation and infrastructure projects. Republicans say Democrats have dropped their demand to raise the debt ceiling.

Senate leaders may get a fresh shot of urgency when the financial markets open Monday morning. The Dow Jones Industrial Average lost nearly 160 points on Friday as prospects for a deal dimmed, and it could plunge again.

If the Senate approved a deal on Monday evening or Tuesday morning, it would give the House a chance to vote on New Year's Day before the markets open again on Wednesday. But swift approval in the upper chamber would depend on getting unanimous consent to waive procedural rules, by no means a sure prospect.

The leaders started the weekend on an optimistic note and gave themselves 36 hours to craft a deal that could be presented to their respective caucuses on Sunday afternoon.

But the talks hit a ditch on Saturday night when McConnell made a proposal that included switching the formula used to calculate Social Security benefit payments. Using the chained consumer price index, or "chained CPI," would curb the growth of the program's cost-of-living adjustments.


Democrats slammed it as a poison pill and warned there would be no last-minute deal to avoid tax hikes if Republicans insisted on entitlement reform, which Democrats had assumed was off the table at this late stage.

McConnell quickly dropped his demand for Social Security reform and reached out to Vice President Biden in hope that he could help “jump-start” the negotiations.

At one point during a meeting with Senate Republicans, McConnell left the room to discuss the next steps with Biden.

“What’s frustrating about this is that this is more about histrionics and theater than it is about good-faith negotiations,” Sen. John Cornyn (R-Texas) said. “I’m somewhat slightly encouraged that Sen. McConnell is talking to the vice president.”

Cornyn said McConnell and Biden talked about “something specific” and the Republican leader would evaluate the president’s latest position and recommend a course of action to the Senate Republican conference.

Reid said the Republican concession on Social Security would allow the talks to move forward.

There is mounting evidence that Republicans will give more ground on income tax rates.

Sen. Olympia Snowe (R-Maine), who earlier this year voted against Obama's favored tax plan, said she could support Obama's proposal to extend tax rates only on annual income below $250,000 if it were the only way to prevent middle-class tax rates from rising. Democrats also signaled willingness to compromise on the threshold for extending rates.

“I like the Reid proposal,” said Sen. Barbara Mikulski (Md.), a liberal Democrat. She said it would have to include other provisions such as one fixing the Alternative Minimum Tax, which was originally designed to ensure the wealthy pay a minimum percentage in taxes but was not indexed for inflation.

Alexander Bolton writes for The Hill, from where this article is adapted. Russell Berman and Erik Wasson contributed to this report.


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