'Lame duck' session may face both 'taxmageddon' and debt-ceiling drama
WASHINGTON – It’s been called “taxmageddon,” a “massive fiscal cliff” and the “quintuple witching hour."
At the stroke of midnight on Jan. 1, about half a trillion dollars worth of fiscal belt-tightening will start squeezing taxpayers, the long-term unemployed, “doc-fix” physicians and the Pentagon.
Unless Congress takes action, of course – and it probably will. But the way things have gone in this nearly paralyzed Congress, the tough decisions will be left to the “lame duck” session squeezed between the November election and the year’s end.
Last week, House Speaker John Boehner, R-Ohio, threw another complication into the end-of-the-year mix when he said GOP leaders want to use the next hike in the nation’s debt ceiling as an “action-forcing event” to cut federal spending further.
And Sen. Roy Blunt, R-Mo., says most congressional Republicans agree with Boehner. “If the president thinks he’s going to have a debt-ceiling fight that doesn’t involve some budget or spending reforms, I think he’s wrong on that,” Blunt said.
But most Democrats are unlikely to go along unless revenues are in the mix – and they have the fallback option of letting the Bush-era and other tax cuts expire as scheduled. “Everything has to be on the table,” said Sen. Dick Durbin of Illinois, the Senate’s No. 2 Democrat, in an appearance Sunday on NBC’s Meet the Press.
“If we’re going to compromise and give the American people an answer – instead of a political speech or sound bite – we’ve got to get back to the same basic Bowles-Simpson principles,” Durbin said. He was referring to the National Commission on Fiscal Responsibility and Reform, which recommended a mix of tax hikes and spending cuts in a 2010 report.
Durbin, a member of the Bowles-Simpson commission and a founder of the bipartisan Gang of Eight – the successor to the Gang of Six senators who had tried unsuccessfully to reach a deficit-cutting deal last year – said the group has been “sitting at the table ….working towards the Bowles-Simpson approach” in a possible compromise.
Rejecting Durbin’s arguments for a mix of taxes and spending cuts, U.S. Rep. Paul Ryan, R-Wisc., chairman of the House Budget Committee and primary author of the House-passed deficit-reduction plan, contended that “the burden of responsibility” is on President Barack Obama to stop the scheduled tax increases and show leadership in advocating a deficit plan that relies mostly on spending cuts.
“Current law is bringing us toward a debt crisis,” Ryan said on Meet the Press. “And if the president is unwilling to sign legislation to change or prevent current law, then we’re going to have a huge tax increase and then we’re going to have a debt crisis.”
In a letter sent Monday to Senate Republicans, Senate Majority Leader Harry Reid, D-Nev., said the GOP's refusal to consider new taxes as part of a deficit-reduction mix would make it impossible for a comprehensive deal on taxes and spending to be struck before the lame-duck session.
Responding to Republican demands that the Bush-era tax cuts be extended quickly, Reid said GOP lawmakers must first agree to higher taxes on millionaires and drop the Medicare overhaul plan advocated by Ryan. "Unfortunately, it appears that Republicans’ blind adherence to Tea Party extremism is making it impossible to reach this sort of balanced agreement before the election," Reid wrote.
If Congress does nothing, automatic spending cuts agreed to in last August’s deficit-reduction deal would go into effect next year, including 9 percent on annual defense spending, 7 percent on non-defense spending and some cuts in entitlement programs. Also, several major tax cuts or breaks would expire:
- The tax cuts of 2001 and 2003, known as the “Bush-era tax cuts.”
- The temporary payroll tax deduction, in effect since the start of 2011.
- Many temporary tax cuts, including the research and experimentation tax credit for businesses and the inflation adjustment to the alternative minimum tax for individuals.
- The temporary extension of jobless benefits’ duration.
- The Medicare “doc fix,” postponing reductions in physician reimbursements.
The Bush tax cuts amount to about $250 billion a year, the payroll-tax holiday accounts for over $100 billion a year, and the debt deal’s automatic cuts would total another $100 billion. All told, the fiscal tightening would total nearly $500 billion, which represents more than 3 percent of the gross domestic product.
“At the end of the year, we have some kind of quintuple witching hour,” said economist Alice M. Rivlin, a former director of the Office of Management and Budget and a member of the Simpson-Bowles commission. She told the PBS News Hour that “something will have to be done, either to extend those provisions, at least for a while or to fix the system so it’s more sensible – or both.”
The New York Times has called the tax-cut expirations “taxmageddon” and Federal Reserve Chairman Ben Bernanke warned recently that the failure of Congress to act on such could result in a “massive fiscal cliff” for the nation’s economy.
Start update: That fiscal cliff could lead to a recession, some economists warn.
On Tuesday, the Congressional Budget Office issued a report estimating that the nation's economy could contract by 1.3 percent in the first half of 2013 if Congress does nothing and allows the scheduled tax rates to increase and the across-the-board spending cuts to occur. The CBO warned that "such a contraction in output in the first half of 2013 would probably be judged to be a recession.” End update.
Boehner adds debt-limit to mix
Along the path to that cliff, of course, are the crucial November elections, which will determine which party controls the White House and Congress – and will, in turn, greatly influence what happens in the lame-duck session.
The new round of deficit scuffles intensified last week, when Boehner – clearly under pressure from GOP candidates – warned that congressional Republicans planned to use the next debt-ceiling increase as an “action-forcing event” to push for more spending cuts.
While it is not yet clear when the nation will reach the debt ceiling, Treasury Secretary Tim Geithner – who criticized Boehner for politicizing the debt-limit proceedings – has said he expects the limit to be reached between Sept. 30 and year’s end.
“My guess is they don’t bring up the debt ceiling until after the election,” Blunt told reporters last week. “I think the speaker is right. The debt-ceiling debate is a moment where you have to make a decision. And part of that decision should always be what kind of ongoing reforms you are going to have.”
Like nearly all of congressional Republicans, Blunt does not want to raise taxes, and he thinks that incorporating “pay-for” spending cuts in debt-ceiling legislation can be an effective way to gradually reducing the fiscal deficit. “I think the speaker’s position reflects the majority, if not all of the Republicans in the Senate,” Blunt said.
He said Obama is “wrong if he thinks he necessarily wins that [debt-ceiling] fight just because the last one might have turned out pretty well for him” last August, when surveys indicated that most Americans favored the White House’s handling of the debate.
“If [Obama] wants to be part of Washington infighting as opposed to national problem solving, that’s his decision,” Blunt said.
But Durbin said Democrats want to make sure that economic recovery continues before agreeing to huge cuts in key government programs. “President Obama and I agree … we ought to make certain that we are strong coming out of this recession, that we are creating good jobs and growing businesses,” he said.
Durbin said the presumptive GOP presidential nominee, Mitt Romney, “has said he wants to return to the same economic policies we had under President Bush that led us into this recession. He called Paul Ryan’s budget ‘marvelous.’ It’s a budget that cuts taxes for the wealthiest and eliminates Medicare as we know it and makes deep cuts in programs that middle-income families need.”
But Ryan fired back, contending that Obama “and his party leaders in the Senate are refusing to do anything to address this debt crisis.” What happens during the lame duck session, he predicted, “will largely be determined by who wins this election” – and he said a Romney victory would be best for taxpayers.
What if Obama is re-elected? “If the last four years is any indication of the next four years under current management, we’ll keep kicking the can, we’ll keep making empty promises to voters – and then we’ll probably have a debt crisis in the next presidency,” Ryan said.
In an appearance on ABC’s This Week, Boehner said, “The real issue here is: Will the president lead?” He added that “people aren't clamoring to invest in Greece today. And if we don't begin to deal with our debt and our deficit … in an honest and serious way, we're not going to have many options.”
The Senate’s GOP leader, Mitch McConnell, R-Ky., said he would not try to force a Senate debate on the debt ceiling before the White House asked for it. But he told CBS’ Face the Nation on Sunday that the debt-ceiling debate – which he predicted would happen at year’s end – would be the “perfect” time to consider deficit solutions.
“We do need to have another serious discussion about trying to do something significant about the deficit and the debt,” McConnell said. “At some point here, this president needs to become the adult.”
But Sen. Mark Warner, D-Va., a member of the Gang of Eight senators that includes Durbin, accused Boehner of again trying to play “debt-ceiling roulette.” Warner said he and other senators agree that “we’ve got to take on this debt issue...but it’s going to take a balanced plan that has revenues and that has entitlement reform.”