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Fiscal cliff: No vote before midnight but deal is close

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  • Greg Cannon
    http://www.politico.com/story/2012/12/fiscal-cliff-hanger-as-deal-in-limbo-85599.html Fiscal cliff: No vote before midnight but deal is close By: John
    Message 1 of 1 , Dec 31, 2012

      Fiscal cliff: No vote before midnight but deal is close
      By: John Bresnahan and Manu Raju and Jake Sherman and Carrie Budoff Brown
      December 31, 2012 06:00 AM EST
      Washington inched closer to a deal that would avert massive tax increases, but Congress will still fall short of passing legislation before a new year deadline, sending the country over the fiscal cliff at least temporarily as the two sides struggled to iron out the final details of a high-stakes package.
      The main holdup right now: Automatic spending cuts poised to kick in during the year, which the two parties have vowed to reverse but have failed to broker an agreement over how to do just that.
      Last-ditch negotiations between Senate Majority Minority Leader Mitch McConnell (R-Ky.) and Vice President Joe Biden — friends from two decades-plus of Senate service — produced an agreement to increase marginal income tax rates to 39.6 percent on individual income more than $400,000 and households that earn more than $450,000.
      The emerging agreement would also permanently patch the Alternative Minimum Tax, raise the estate tax rates for high-value properties, extend unemployment benefits for a year, continue several middle-class tax cuts for five years and add a temporary fix to Medicare reimbursement rates.
      The Senate and House vote timing is still in flux, but the McConnell-Biden plan is a reprise of 2010, when the two men hashed out an agreement to extend the same Bush-era tax cuts, but for all income levels.
      Still left outstanding is how Congress will modify the $109 billion in automatic spending cuts set to take effect in the new year. Democrats want to delay this sequester for a full year, and pay for it with a mix of new revenue and spending cuts.
      McConnell took to the Senate floor Monday to say Congress should immediately clear the tax deal in order to prevent historic tax hikes starting Tuesday, and attempt to cut a separate deal reversing the automatic spending cuts. Senate Democrats and the White House are opposed to separating the two issues, potentially complicating a late-stage agreement.
      “Let’s pass the tax relief portion now, let’s take what’s been agreed to and get moving,” McConnell told his colleagues.
      The Senate could potentially vote Monday evening, but the House will not be voting New Year’s Eve. The vote is expected to be close in the House, where the GOP majority has focused on spending cuts, not tax increases. House Republicans were slated to meet Monday afternoon, but did not expect to talk about the tax deal. Instead, they will go over other unfinished business like relief for Hurricane Sandy and expiring farm policy.
      Speaker John Boehner (R-Ohio) has vowed to bring any bill the Senate passes to the House floor, but House Republicans could amend the package, which would throw any agreement into flux
      The McConnell-Biden agreement reflects significant concessions by both sides, but particularly for McConnell. Obama campaigned on raising taxes for families who make more than $250,000, but McConnell has long been dead-set against any tax increases, warning they would jeopardize the economy. It would make the higher tax rates for wealthier families permanent, which McConnell would sell as a win for his party since it could avert future fights over expiring tax rates.
      President Barack Obama appeared at the White House Monday to say that a deal is “within sight, but it’s not done.”
      “There are still issues to resolve, but we’re hopeful that Congress can get it done,” Obama said, angering Capitol Hill Republicans who saw the speech as a jab in the eye.
      “Democrats and Republicans in Congress have to get this done,” Obama said, adding that with this Congress, “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 ribbed lawmakers at another point during his remarks, saying he had hoped for a comprehensive deficit-reduction deal “so we can put all of this behind us and just focus on growing our economy.”
      “With this Congress, that was obviously a little too much to hope for at this time,” Obama said. “Maybe we can do this in stages. We can solve this problem instead in several steps.”
      Under the emerging agreement, the estate tax would be set at 40 percent for inherited properties worth more than $5 million — less than the 55 percent rate for properties worth $1 million that would kick in absent a deal. (Obama wanted an estate tax set at 45 percent for estates worth more than $3.5 million.) The first $5 million of an estate for a single person would not be taxed; that threshold would rise to $10 million for married people.
      Republicans would portray both of those tax components as a victory.
      Democrats, in turn, get a year-long extension of both unemployment benefits and business-friendly tax provisions. In a major win for the Obama administration, tax cuts for families first enacted in the 2009 stimulus — an earned income tax credit, child tax credit and college tax credit — would be extended for five years.
      The deal would also prevent rate cuts to doctors who treat Medicare patients, sources said. Dividends and capital gains for families who earn more than $450,000 would be taxed at 20 percent, up from the current 15 percent rate.
      As news spread about a possible deal, anger on both sides of the aisle continued to grow, especially among liberals.
      Sen. Tom Harkin (D-Iowa), an influential liberal, warned on the floor that the discussions over a deal on the estate tax and raising the threshold to $450,000 “doesn’t sit well with this senator.” He called the outlines of a possible deal is “grossly unfair” and a “tough pill to swallow.”
      Harkin told POLITICO that he would object to any effort for a quick vote on the possible deal if it resembled what he had read in early reports. He was immediately summoned to a meeting with Reid.
      Sen. Tom Udall (D-N.M.) said he was “disturbed” about the proposal, particularly its short-term nature. “I don’t think we should be kicking the can down the road,” especially if there’s a deal to delay the sequester from taking effect.
      “It’s not a great sign,” Sen. Sheldon Whitehouse (D-R.I.) told reporters, cautioning that he wants to see other elements of the deal. “Obviously it takes a lot of revenue off the table that will lead to more cuts in other things.”
      When asked whether it would be better to run out the clock on the current Congress, Whitehouse responded “as long as we get a decision at a reasonable time in January and we make it retroactive, there’s no real long term harm in that and that may be the best way to get a good, fair, sensible deal for the middle class.”
      Moderate senators like independent Joe Lieberman of Connecticut and Republican Susan Collins of Maine both expressed openness to the possible deal.
      Sen. John Thune (R-S.D.), No. 3 in leadership, said he wanted to see a deal that “would actually deal with the real problem … that our country spends too much.”
      The last-ditch horse-trading underscored the urgency of the situation because if no deal is reached, every income group will be hit with a tax hike starting Tuesday. Crucial conversations between Biden and McConnell occurred early Monday morning, at 12:45 a.m. and 6:30 a.m., aides said.
      The vice president and the Senate minority leader only began talking Sunday, after negotiations between Senate Majority Leader Harry Reid (D-Nev.) and McConnell sputtered.
      Going over the cliff is not how Americans want to start 2013: with hefty new tax hikes and spending cuts that could send the stock market plummeting, slash defense spending and interrupt an economic recovery that was just beginning to spark.
      But after a weekend in which senators haggled over one obstacle to agreement after another, going over the cliff looked like a real possibility, if not a probability. The McConnell-Biden talks look like they could avert this potential disaster.
      The back-and-forth shows the difficult political calculus both sides were making on the eve of a critical deadline. The drawn-out negotiations were frustrating to many in both parties who are eager to see an agreement reached.
      “I’ve been here four years, and I cannot believe negotiations have reached this level of gridlock. I am fed up with the stalling,” said Alaska Democratic Sen. Mark Begich.
      With no deal at hand, Senate leaders had prepared alternative plans to avoid the cliff’s full impact, including a fallback option floated by Democrats to force through an extension of current tax rates for families who make less than $250,000, as well as new spending measures to extend jobless benefits for 2 million unemployed Americans. Republicans were still weighing whether they’d demand 60 votes for passage of even a limited measure, though the prospects for such a bill in the GOP-controlled House remained bleak.
      Biden’s inclusion in the negotiations — similar to the role he played in previous legislative fights involving McConnell, an old Senate colleague — set up a “good cop, bad cop” scenario for Democrats, with Reid playing the heavy and Biden able to work more closely with GOP leaders on Capitol Hill.
      Republicans, for their part, aren’t sure Reid and Obama even want a deal, believing Democrats figure that they win politically if no agreement is reached and the country goes off the cliff.
      Republicans were still weighing their strategy if Reid moves forward with a fallback plan. If they consent to a simple majority vote, the bill could pass the Senate, putting House leaders in a difficult position on the eve of a cliff fall. But if Senate GOP-ers demand 60 votes, they could be blamed for blocking a last-ditch deal to avert massive tax hikes.
      “We’d like to be able to offer some amendments” to a cliff deal, said Sen. John Cornyn of Texas, the incoming GOP whip. “It depends on the majority leader.”
      House Republicans — who brought their chamber back to session Sunday — are waiting for the Senate to pass a bill, and don’t plan to move any bill on their own.
      Seung Min Kim, Ginger Gibson and Kate Nocera contributed to this report.
      © 2012 POLITICO LLC
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