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
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
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
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
“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
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
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
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.,
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
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.