CQ TODAY ONLINE NEWS – ECONOMIC AFFAIRS
Nov. 5, 2012 – 11:31 p.m.
Washington’s Attention Will Shift Quickly from Election to Fiscal Cliff
By Ben Weyl, CQ Staff
The winner of Tuesday’s presidential election won’t have long to savor the victory because he will have to turn almost immediately to high-stakes negotiations with Congress to step back from the fiscal cliff of tax and spending issues.
Although political observers and lawmakers alike believe the combination of tax hikes and spending reductions set to take effect at the start of 2013 will be avoided, exactly how the lame duck session shakes out will hinge on the election’s results.
President Obama and former Gov. Mitt Romney, along with congressional leaders in both parties, say they do not want to allow the George W. Bush-era tax cuts (PL 107-16, PL 108-27) to lapse entirely and oppose implementing the $109 billion in across-the-board spending cuts required by last summer’s debt ceiling law (PL 107-16, PL 108-27).
Without congressional action on these matters, the Congressional Budget Office predicts the economy would be thrown back into recession in the first half of next year, and the Pentagon has warned the spending cuts would devastate the country’s national security.
But the warnings of dire economic and security consequences haven’t been enough to break the partisan deadlock, and each side has looked to the election for signs of leverage in what is certain to be a chaotic set of last-ditch negotiations that will take in behind-the-scenes talks as well as likely brinkmanship on the House and Senate floors. The main uncertainty is over the race for the White House since Republicans are almost certain to hold onto their House majority and Democrats look increasingly likely to retain control of the Senate, based on late polls in key races across the country.
If Romney wins, he is expected to urge Congress to at least temporarily extend current tax policies, setting aside the expiration of a large array of tax provisions, and delay sequestration for six months or a year. That would give a Romney administration a chance to forge an agreement that would include a rewrite of the tax code and to build a budget that would set out multi-year spending targets and deficit reduction.
“Let’s have a year of runway, or even six months of runway after the new president is elected so that we can, we can have the tax reform and the military spending plans and the budget plans that are consistent with that individual’s leadership and views,” Romney said during his campaign.
Obama has threatened to veto any bill that doesn’t raise tax rates on the wealthiest earners, but it is unclear if he would follow through after having been defeated for reelection. That would allow him to put a final stamp on fiscal policy, and although it might appear like a less-than-magnanimous parting shot, it could leave Senate Democrats with some bit of leverage as they seek to blunt a Romney administration agenda.
“Mitt Romney’s fantasy that Senate Democrats will work with him to pass his severely conservative agenda is laughable,” Senate Majority Leader
If Obama wins, he likely will claim the electoral victory as a mandate for a deal that increases taxes on upper-income earners — a line in the sand that congressional Republicans have consistently refused to cross. Having just been reelected, Obama would hold additional leverage, likely increasing the odds that tax rates go up on Jan. 1, either by forcing GOP lawmakers to yield, or simply by allowing the calendar to turn and change the state of taxation in America.
“I don’t think the president has any concern whatsoever of letting us go off the cliff,” said Rep.
Obama has said he sees the cliff as “a forcing mechanism” to address the country’s tax and spending issues. He told the Des Moines Register it would provide an opportunity to craft, over the next six months, a “grand bargain” to stabilize the growing national debt with a mix of spending cuts and revenue increases.
But even with the Senate and House likely still split in the coming year, many Washington observers believe lawmakers won’t ring in the New Year without some sort of patch to protect the economy. Congress has approached the end of the year before agreeing to extend the Alternative Minimum Tax, for instance, and many believe real action will come only in the 11th hour.
Washington’s Attention Will Shift Quickly from Election to Fiscal Cliff
That’s a view widely shared in the financial industry, said Brian Gardner, an analyst at the brokerage firm Keefe, Bruyette & Woods. “I didn’t talk to one investor around the country who thought we were going to go over the fiscal cliff,” Gardner said. “I agree with that view.”
Sarah Binder, a congressional scholar at George Washington University, also expects Congress and the Obama administration to hold off on implementing sequestration and letting tax rates rise.
“I’m of the view that they will see a big kick of the can down the road,” Binder said. “I think raising taxes at Christmas is a really unpopular thing to do.”
If some lawmakers get their way, any agreement will set the groundwork in the lame duck session for a major deficit reduction package to be enacted next year no matter who wins the White House.
During the long campaign season, a bipartisan group of senators, including
It’s unclear how much traction those ideas have, however. Steve Bell, a former top GOP Senate budget aide, is pushing a similar plan produced by the Bipartisan Policy Center, where he is now senior director of economic policy. In shopping it to lawmakers, he has encountered strong bipartisan resistance.
“I think people underestimate the extraordinary polarization,” Bell said. “I think there’s a much greater chance that we go over the cliff to some extent than not.”
Sam Goldfarb contributed to this story.