US lawmakers hurtled toward a midnight deadline to avert hundreds of billions of dollars in tax increases and spending cuts, struggling to extract the country from a fiscal trap they created.
Even if they reach a last-minute Budget agreement, it would be short of the so-called grand bargain of deficit reduction lawmakers envisioned.
Instead, a deal would be the least common denominator, blunting only some of the recession-causing policies Congress imposed as unthinkable consequences to force compromise. Further, any deal reached just before or after tonight’s deadline would set another deadline in early 2013 when lawmakers will again fight over the debt ceiling.
As the paper went to print with less than 10 hours from the deadline, US President Barack Obama was scheduled to speak on the issue soon, indicating that a deal might be in sight. The emerging deal would raise tax rates for individuals with income above $400,000 a year and households above $450,000 a year, according to a source familiar with the matter.
“Trying to settle things and trying to find common ground is more than a work of art — it’s almost impossible,” said Ben Nelson, a Nebraska Democrat who is retiring from Congress after 12 years in the Senate.
Senators worked through the weekend without an agreement. Senate Majority Leader Harry Reid said negotiators could reach a US budget deal that would protect all but top earners from a tax increase at midnight.
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“Negotiations are continuing as I speak,” Reid, a Nevada Democrat, said as the Senate reconvened in Washington. “Americans are still threatened with a tax hike in just a few hours.”
Arizona Senator Jon Kyl on Monday said a “lot of progress” has been made in talks but he cautioned that it is unclear if the progress will spur legislation the Senate can vote on before the midnight deadline.
Stocks gained in anticipation of a deal. The Standard & Poor’s 500 Index gained 0.3 per cent to 1,406.47 at 10:09 am in New York. The Dow Jones Industrial Average added 4.69 points, or less than 0.1 per cent, to 12,942.80 today. The benchmark 10-year Treasury bond yield increased two basis points, or 0.02 percentage point, to 1.72 per cent at 9:35 a.m. in New York, according to Bloomberg Bond Trader prices.
| CHANGES SET TO OCCUR IF CONGRESS TAKES NO ACTION | ||
| TAX INCREASES | SPENDING CUTS | DEBT AND THE BUDGET |
| Immediately | ||
| * From January 1, payroll taxes rise to 6.2 per cent from 4.2 per cent on workers’ first $113,700 of income * Capital gains, qualified dividends and estates and gifts are subject to higher taxes * High earners face new taxes under the health care law | * Payments to Medicare providers fall by 27 per cent * Extended unemployment benefits expire for 2 million people * $110 billion in automatic domestic and military spending cuts, known as sequestration, begin to occur January 2 onwards | * The federal debt ceiling is officially reached on December 31, and the US Treasury begins “extraordinary measures” to put off default |
| Within months | ||
| * While tax cuts expire Dec. 31, workers will not feel impact until Treasury releases new withholding instructions * For 2012 returns, alternative minimum tax applies to about 27 million more taxpayers, and individuals and businesses lose some tax credits. The Treasury could postpone filing dates and refund cheques | * Six-month extension of the Temporary Assistance for Needy Families programme expires * Domestic and military agencies have until the end of the fiscal year to put all of their spending cuts in place. Economists and federal agencies have estimated that hundreds of thousands of jobs could be lost | * If the debt ceiling is not raised, the Treasury will exhaust its resources by mid-Feb—early-March to avoid default and will be unable to meet its financial obligations * Financing for federal programmes that rely on budget appropriations from Congress expire, unless another continuing resolution is passed |
| Source: The New York Times | ||
It wasn’t supposed to come down to the final minutes. Congress and Obama created the so-called fiscal cliff of more than $600 billion in tax increases and spending cuts by enacting laws in 2010, 2011 and 2012 that shared a common deadline of January 2013.
That was part coincidence and part intentional. The idea was to force a bipartisan deficit reduction deal by making the alternative untenable for either party: simultaneous tax increases at all income levels and spending cuts that would harm national defence.
Lawmakers could then replace the sudden deficit reduction of the fiscal changes with more gradual policies. What a deal will get them instead is some deficit reduction, some economic slowdown and little clear policy about the nation’s fiscal future. The US Budget deficit has exceeded $1 trillion for each of the four years Obama has been in office.
The president and lawmakers yesterday sought to assure taxpayers and investors that a deal extending some tax cuts and other expiring provisions will happen — if not by January 1 then soon after a new Congress convenes on January 3.
“What’s been holding us back is the dysfunction here in Washington,” Obama said yesterday on NBC’s “Meet the Press.”
Still, the impasse has deepened concerns about another recession as the economy is showing signs of a rebound. It also has led to worries about dysfunction in Congress and Speaker John Boehner’s ability to control the Republican-led House of Representatives.