Deal on fiscal cliff reached; Vote expected

Senate leaders and the White House struck a last-minute deal to avert the feared fiscal cliff Monday night, with Vice President Joe Biden headed to the Capitol Hill to pitch the plan to fellow Democrats.

“Happy New Year,” Biden, who became the Democratic point man in the talks, told reporters. “Did you think we would be here New Year’s Eve?”

But the House of Representatives went home long before midnight, meaning nothing will get through Congress before the combination of tax increases and spending cuts Congress has been scrambling to head off starts to kick in.

A source familiar with the deal told CNN that the Senate proposal would put off the cuts for two months and keep the expiring Bush-era tax cuts for individuals earning less than $400,000 or couples earning less than $450,000. Taxes on inherited estates over $5 million will go up, and that exemption will be indexed for inflation.

Biden had been in negotiations with Senate Minority Leader Mitch McConnell, R-Kentucky, since Sunday afternoon. Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats, agreed to the plan in calls with President Barack Obama, a Democratic source said Monday night.

Economists warn the one-two punch of tax increases and spending cuts could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013. Obama had chided lawmakers earlier Monday and warned that battles over spending still loomed, hitting a nerve among several Republicans in the Senate.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

Obama said the plan on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families, extend credits for clean-energy companies and extend unemployment benefits for 2 million people. But he said lawmakers still have to figure out how to mitigate the impact of the planned cuts.

And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

That irked Republican senators who have been grappling for a deal with the Democratic majority in that chamber. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

And Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks.

“People have to wonder whether the president really wants issue resolved, or is it in his short-term political benefit for us to go over the cliff,” said McCain, R-Arizona.

A source familiar with the negotiations said the proposals under discussion would generate $600 billion by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. The top tax rate would return to 39.6% from its current 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In the House, GOP sources said there’s little practical difference in settling the issue Monday night versus Tuesday. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.

Earlier, a GOP source told CNN that the sticking point in talks was $24 billion in spending cuts being sought by Republicans in place of the $110 billion in automatic spending now set to take effect.

As Monday’s deadline drew nigh, federal agencies were preparing for the possibility of furloughing workers. At the Pentagon, a Defense Department official said as many as 800,000 civilian employees could be forced to take unpaid days off as the armed services face an expected $62 billion in cuts in 2013 — about 12% of its budget.

Those workers perform support tasks across the department, from maintaining aircraft and weapons systems to processing military payrolls and counseling families. The Pentagon believes it can operate for at least two months before any furloughs are necessary, but has to warn its civilian workforce that furloughs could be coming, the official said.

The White House budget office noted in September that sequestration was designed in 2011 as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

Despite Obama’s backing, one leading Senate Democrat warned a deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

 – CNN Reporting

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8 comments

  • Robert Smith

    This could very well backfire on Republicans. After the new year, tax rates on the wealthy will be exactly where the Democrats want them to be. There would be no reason to put forward a bill in the Senate that did anything but lower the rates for those people making less than $250K per year, and to extend some critical unemployment benefits. The Republicans will then find themselves in the unenviable position of having to explain exactly WHY they refuse to vote for a bill that would lower taxes for 98% of the people. They'll have a lot of "splainin" to do.

  • docsafety

    I think the Republicans don't want to hurt the wealthy who make big contributions to their campaign. That is the reason the "Repubs" aren't for the tax on the wealthy. At least that is how I've heard from my contacts.

    • sobeit

      ou think so… well take alook at the democratic donors the TV/movie stars not to mention that every tv station covers up 85% of what Obama and the democrats do, and hang in there Obama signed into to law that federal employees, congress and himself are getting a salary increase .. gee explain that to me an why aren't the news media bringing this to the people… nope… theres BIG money on both sides..

  • Nonspecific

    This is just crazy. They need to all learn to work for the people and not have their own agendas. I wish they would stop looking at everything as democrats and republicans. We are first of all people and if we keep going our country will not have half the power we had in the past.

  • sobeit

    heres a thought , no entitlement for having kids out of wed lock, .. and set a limit of 2 .. like that 23 year old who had 4 kids under the ager of 4 and she and her friend left them alone so she could go to a bar… nope we shouldn't have to pay if you get knocked up that is not the american way!

  • Thequestionnooneasks

    I agree sobeit. maybe they should listen to you instead of giving us a marriage penalty. In their eyes a broken family needs to rely on the government more. All part of their sick plan for a dependant American.

  • Tired of the Morons

    "Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks" Evidently Father Time wasn't as busy as we thought. Shut-up and get over your ass whipping already.

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