CQ TODAY ONLINE NEWS
June 26, 2012 – 11:02 p.m.
Lawmakers Seek Alternatives Around ‘Fiscal Cliff’
By Joseph J. Schatz, CQ Staff
With the threat that automatic budget cuts and expiring tax cuts will not be enough to prod Congress into a deal on taxes and spending, lawmakers are looking at other procedural mechanisms and measures to punt the impact of the many fiscal issues into next year without sacrificing their own bargaining power.
Republican tax writers in the House are preparing legislation to extend the expiring Bush-era tax cuts for one year while setting up a fast-track process to compel a broader rewrite of the tax code next year. In the Senate, Finance Chairman
The automatic reduction in discretionary spending on defense and domestic programs under sequester, due to take effect Jan. 2, 2013, was supposed to force both parties to negotiate a more far-reaching agreement when it was included in last year’s debt ceiling deal (PL 112-25). But with both parties entrenched in their positions in advance of the 2012 elections, it has not had the intended effect.
Finance Committee Democrat
The focus on tactics suggests that some lawmakers believe the November elections are unlikely to eliminate the partisan dynamics that have left congressional leaders far from a fiscal consensus despite multiple rounds of deficit talks, dozens of committee hearings and bargaining by a joint select committee established last August. That panel was charged with finding $1.2 trillion in budget cuts, and leaders would then have brought the result to the House and Senate floors for votes under special expedited procedures.
But the panel’s inability to strike a deal illustrates that even procedural sleights of hand offer no guarantees in a polarized political environment, and the ongoing impasse this year shows the difficulty lawmakers face in designing even a vehicle to simply push the looming tax and spending questions deeper into next year.
That’s particularly true when it comes to overhauling the tax code. Even if they set up a special process to craft a new tax deal, leaders will still have to agree at the start to top-line numbers and goals, including how much revenue, if any, the tax code rewrite would raise and how progressive the tax code would be. Those are the same issues that have split congressional Republicans and the White House during the past year.
And there will be little time to make those decisions. With the Bush-era tax cuts set to expire Jan. 1, 2013, and a first round of $1.2 trillion in automatic budget cuts set to start the following day, congressional leaders have been mapping out different scenarios for the lame-duck session. Those scenarios depend largely on whether President Obama wins re-election.
Tax Overhaul Eyed
Many lawmakers in both parties want to rewrite the sequester cuts, and many also want to overhaul the tax code.
President Obama opposes any extension of the Bush tax cuts on those with an income greater than $250,000. Senate Majority Leader
“If we’re serious about setting an example for the rest of the world and setting an example for our constituents, then we should live by what we agreed to,” Reid told reporters Tuesday. “I don’t intend to move off that until there’s something that comes along better. Right now, there’s nothing better.”
Still, economists warn that an expiration of the tax cuts could damage the economy, and if Obama is re-elected, he might face intense pressure to agree to a deal delaying the cuts and tax cut expiration into 2013. House and Senate Republicans are seizing on that argument and pushing Democrats to agree to a one-year extension of the tax cuts.
Lawmakers Seek Alternatives Around ‘Fiscal Cliff’
“At a minimum, it seems to me that we could do a year” delay, Sen.
Republicans and Democrats alike have said that revenue would have to come through a new look at the tax code, and Ways and Means Chairman
Statutory fast-track trade authority has lapsed, but it guaranteed a legislative vote on trade agreements, with no amendments or Senate filibusters, within 90 days of the White House submitting it to Congress.
The bill is expected to hit the House floor just before the August recess. The House has already passed separate legislation that would replace the impending Pentagon cuts with cuts to domestic spending.
Extension With ‘Teeth’
After making tax code inequality the centerpiece of their 2012 campaign, Democrats would most likely demand that any such extension include some sort of guarantee that a 2013 tax overhaul debate would occur on terms favorable to Democrats. If Obama wins, figuring out how to write that guarantee in a way that both House Republicans and the White House can accept would be the central question, notes one Senate GOP aide.
At a Finance panel hearing last week featuring testimony from former Clinton Office of Management and Budget Director Alice Rivlin and former Sen. Pete V. Domenici, R-N.M., Baucus seemed to be weighing the merits of letting all the tax cuts expire or of passing an extension linked to some kind of trigger.
According to some people, Baucus said, “if we extend the tax cuts until next year, 2013, that we’re just kicking the can down the road, that Congress won’t do what it needs to do to raise revenue.” Allowing the cuts to expire would leave a kind of clean slate, he said, allowing lawmakers to cast any subsequent tax overhaul as a tax cut, a political boon for everyone.
Rivlin and Domenici endorsed extending the tax cuts beyond Jan. 1 if Congress sets up a process to ensure a tax overhaul. Domenici, now a senior fellow at the Bipartisan Policy Center, said his group is working on a such a proposal, probably involving the budget reconciliation process, that will have “teeth.”
Originally created to make it easier to pass deficit reduction measures, reconciliation has been used by both parties to avoid Senate filibusters on tax measures as well as on spending legislation.
Finance Committee member
“I think the election changes everything,” he said.