WASHINGTON — The White House and Senate Republicans sorted through stubborn disputes over taxing the wealthy and cutting the budget to pay for Democratic spending proposals as Monday's midnight deadline for an accord avoiding the ÿfiscal cliffÿ drew to within hours.þþSenate Minority Leader Mitch McConnell, R-Ky., spoke repeatedly Sunday to Vice President Joe Biden, a former Senate colleague, in hopes of settling remaining differences and clinching a breakthrough that has evaded the two sides since President Barack Obama's November re-election. In one indication of the eleventh-hour activity, aides said the president, Biden and top administration bargainer Rob Nabors were all working late at the White House, and McConnell was making late-night phone calls as well.þþUnless an agreement is reached and approved by Congress by the start of New Year's Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs. Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.þþÿThere is still significant distance between the two sides, but negotiations continue,ÿ Senate Majority Leader Harry Reid, D-Nev., said shortly before the Senate ended an unusual Sunday session. ÿThere is still time to reach an agreement, and we intend to continue negotiations.ÿþþThe House and Senate planned to meet Monday, a rarity for New Year's Eve, in hopes of having a tentative agreement to consider. Yet despite the flurry of activity, there was still no final pact.þþÿThis whole thing is a national embarrassment,ÿ Sen. Bob Corker, R-Tenn., said Monday on MSNBC, adding that any solution Congress would swallow at this late stage would be inconsequential. ÿWe still haven't moved any closer to solving our nation's problems.ÿþþIn a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama's campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.þþAttached to the measure — which the GOP seemed likely to block — would be an extension of jobless benefits for around 2 million long-term unemployed people. The plan was described by Sen. Richard Durbin of Illinois, the chamber's No. 2 Democrat.þþThe House and Senate met Sunday ready to debate an agreement or at least show voters they were trying. But the day produced alternating bursts of progress and pitfalls, despite Senate chaplain Barry Black's opening prayer in which he asked the heavens, ÿLook with favor on our nation and save us from self-inflicted wounds.ÿþþIn one sign of movement, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.þþObama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with House Speaker John Boehner, R-Ohio, over a larger deficit reduction agreement. But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.þþÿIt's just acknowledging the reality,ÿ Sen. Susan Collins, R-Maine, said of the GOP decision to drop the idea.þþThere was still no final agreement on the income level above which decade-old income tax cuts would be allowed to expire. While Obama has long insisted on letting the top 35 percent tax rate rise to 39.6 percent on earnings over $250,000, he'd agreed to boost that level to $400,000 in his talks with Boehner. GOP senators said they wanted the figure hoisted to at least that level.þþSenators said disagreements remained over taxing large inherited estates. Republicans want the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats want the rate increased to 45 percent with a smaller exclusion.þþThe two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.þþRepublicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.þþThese included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.þþÿWe can't use tax increases on anyone to pay for more spending,ÿ said Sen. Kay Bailey Hutchison, R-Texas.þþBoth parties also want to block an immediate 27 percent cut in reimbursements to doctors who treat Medicare patients. Republicans wanted to find savings from Obama's health care bill as well as from Medicare providers, while Democrats want to protect the health care law from cuts.þþBoth sides agree that a temporary 2-percentage-point cut in the Social Security payroll tax was likely to expire. That reduction — to 4.2 percent — was initiated by Obama two years ago to help spur the economy and has meant $1,000 annual savings to families earning $50,000.þþA senior defense official said if the spending cuts were triggered, the Pentagon would soon begin notifying its 800,000 civilian employees to expect furloughs — mandatory unpaid leave, not layoffs. It would take time for the furloughs to be implemented, said the official, who requested anonymity because the official was not authorized to discuss the preparations.þþWhat happens if the miss the deadline?þþIf New Year's Day arrives without a deal, the nation shouldn't plunge onto the shoals of recession immediately. There still might be time to engineer a soft landing.þþSo long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.þþThe big wild card is the stock market and the nation's financial confidence: Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending? In what could be a preview, stock prices in the U.S. and Europe dropped Friday on waning hopes that Obama and key lawmakers would reach an 11th-hour compromise.þþFederal Reserve Chairman Ben Bernanke has warned lawmakers that the economy is already suffering from the uncertainty and they shouldn't risk making it worse by blowing past their deadline.þþWhat if they never agree?þþIf negotiations between Obama and Congress collapse completely, 2013 looks like a rocky year.þTaxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the nonpartisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.þþAt the same time, Americans would feel cuts in government services; some federal workers would be furloughed or laid off and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.þþÿThe consequences of that would be felt by everybody,ÿ Bernanke says.þþThe taxesþþMuch of the disagreement surrounds the George W. Bush-era income tax cuts, and whether those rates should be allowed to rise for the nation's wealthiest taxpayers. Both political parties say they want to protect the middle class from tax increases.þþSeveral tax breaks begun in 2009 to stimulate the economy by aiding low- and middle-income families are also set to expire Jan. 1. The alternative minimum tax would expand to catch 28 million more taxpayers, with an average increase of $3,700 a year. Taxes on investments would rise, too. More deaths would be covered by the federal estate tax, and the rate climbs from 35 percent to 55 percent. Some corporate tax breaks would end.þþThe temporary Social Security payroll tax cut also is due to expire. That tax break for most Americans seems likely to end even if a fiscal cliff deal is reached, now that Obama has backed down from his call to prolong it as an economic stimulus.þþThe spendingþþIf the nation goes over the fiscal cliff, budget cuts of 8 percent or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.þþThere's more at stakeþþAll sorts of stuff could get wrapped up in the fiscal cliff deal-making. A sampling:þþ• Some 2 million jobless Americans may lose their federal unemployment aid. Obama wants to continue the benefits extension as part of the deal; Republicans say it's too costly.þþ• Social Security recipients might see their checks grow more slowly. As part of a possible deal, Obama and Republican leaders want to change the way cost-of-living adjustments are calculated, which would mean smaller checks over the years for retirees who get Social Security, veterans' benefits or government pensions.
Source: Chicago Tribune
