Budget Bargain Shrinks as Congress Nears Deadline

Congress returns Thursday, but hopes are dimming for a deal before year-end.

The deal that seems possible to fix the U.S. budget is getting smaller and smaller.

Five days before a deadline that would trigger more than $600 billion in tax increases and spending cuts that could cause a U.S. recession, Congress will return Dec. 27 amid calls for action in the Senate.

The politics of progress there are easier than in the Republican-controlled House of Representatives, which balked last week at Speaker John Boehner’s plan for tax increases on income above $1 million. Still, the House would have to sign off next. Boehner and President Barack Obama have been unable to agree on the tax-rate increase on top earners Obama wants or the cuts to entitlement programs that Boehner sought, complicating the chances of getting a package done.

“At this point, all they’re looking for is a fig leaf,” said Stan Collender, a former staff member of the House Ways and Means Committee and the House and Senate Budget committees who is now at Qorvis Communications in Washington. “There’s no grand bargain. There never was.”

The Senate is run by Democrats, and some Republican members, including Kay Bailey Hutchison of Texas, have said that they would favor a small deal on parts of what the president has sought to avoid raising taxes on the middle class.

The trouble is that Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, need to come up with something that also can get through the House, which has balked at any tax increases. Senate Republicans don’t want to be on the record supporting higher taxes unless they know the House also would pass it.

“There’s still a chance for them to get a deal,” said Ron Bonjean, a Republican strategist who formerly served as a spokesman for House Speaker Dennis Hastert and Senate Majority Leader Trent Lott. “It grows more unlikely by the day, and there’s not a lot of days left.”

Obama plans to leave for Washington today from his Christmas vacation in Hawaii, while his family will stay behind, the White House said yesterday. Lawmakers plan to return tomorrow, the same day Obama will arrive in Washington.

Bonjean put the probability of no deal at 75 percent. Still, he said there’s a chance for one because the president and Republican leaders want to avoid the “fiscal cliff” -- a term coined by Federal Reserve Chairman Ben S. Bernanke in testimony before the House Financial Services Committee in February. Tax cuts signed into law by President George W. Bush and extended by Obama are scheduled to expire Jan. 1, and automatic spending cuts are scheduled to start next month, creating the so-called cliff.

 

Stocks, Bonds

 

Standard & Poor’s 500 Index futures expiring in March increased 0.2 percent to 1,422.1 at 6:42 a.m. in New York. Dow Jones Industrial Average futures gained 15 points, or 0.1 percent, to 13,080, at 6:10 a.m. in New York. The yield on the benchmark 10-year Treasury bond was 1.78 percent at 7:02 a.m. in New York, little changed from Dec. 24, according to Bloomberg Bond Trader prices.

U.S. equity markets were closed for the Christmas holiday yesterday. The S&P 500 dropped 0.2 percent on Dec. 24 amid concern policy makers will fail to strike a compromise.

Before going on vacation with his family, Obama urged leaders of both parties to put together an interim bill to keep taxes from rising on middle-income Americans as they work on a more comprehensive package.

Senate Democratic leaders have said they won’t take action on a fallback plan unless they have assurances from Boehner that he will bring it up in the House and let it pass with a combination of Democratic and Republican votes, and from McConnell that Senate Republicans won’t filibuster it.

“A comprehensive solution to the looming fiscal cliff will need to be a bipartisan solution,” Reid said on the chamber’s floor Dec. 21. “No comprehensive agreement can pass either chamber without both Democrats and Republican votes.”

Senator Charles Schumer of New York, the chamber’s third-ranking Democrat, told reporters Dec. 21 that “the key to this is the House.” McConnell wouldn’t “want to have his members put their necks on the line for a deal that may not pass the House,” he said.

Schumer and Reid called on Boehner to resume talks with Obama. Failing to reach a budget deal would push the U.S. into recession for the first half of 2013, according to the nonpartisan Congressional Budget Office.

 

No Deal

 

“At this point there’s zero percent chance of a big deal and maybe a 10 percent chance of a small deal before Jan. 1,” Collender said. He has predicted a no-deal scenario since before Memorial Day, and said the past two weeks of inaction reinforced his projection.

At this point, Collender said, whether the Senate moves first won’t matter.

“Nothing will move House Republicans if they don’t feel like getting moved,” he said. “They’ve never been swayed by the Senate before.”

The remaining option for averting the cliff, he said, would be if Boehner risks his House speakership to put to the floor a tax deal that would get a majority of Democrats to support it and few -- perhaps less than 50 -- Republicans.

“The Republican caucus would never forgive him,” he said. “The statesmanlike thing to do would be to say I’m the speaker of the House, not the head of the Republican party. That is the equivalent of never running for speaker again.”

Boehner was selected by his conference as the Republican nominee for House speaker. He needs an absolute majority of those present and voting on Jan. 3 -- 217 votes -- to be re-elected. Republicans will hold 234 seats to begin the 113th Congress in January. Once re-elected, Boehner will have more freedom to cut a deal, Collender said.

Until Dec. 17, Obama and Boehner had been edging closer to a deal that included $1 trillion each in tax increases and spending cuts. Boehner had put tax-rate increases on the table for income above $1 million a year, infuriating some lawmakers backed by anti-tax Tea Party groups.

That was the proposal he pulled from the House floor on Dec. 20 rather than see it defeated by his own caucus members.

It’s still possible to reach an agreement before the deadline. Both Obama and Boehner have offered concessions in talks, in person and by telephone, since Dec. 5.

 

Initial Parries

 

The president initially sought $1.6 trillion in new revenue, including a return to pre-Bush income tax rates for annual household income over $250,000 a year. The speaker first rejected any increase in tax rates, instead offering $800 billion in revenue by limiting unspecified exemptions.

After Boehner proposed raising taxes for households earning more than $1 million a year, Obama countered with a proposal to raise taxes on more than $400,000 of income.

Obama also has agreed to accept cuts in entitlement spending on programs such as Medicare, while Boehner has maintained that new taxes and spending cuts must be balanced on a one-to-one basis.

In sum, the two have approached the outlines of a plan that would raise about $1 trillion in tax revenue and cut about $1 trillion in spending.

Republicans are “not going to get what we think is right” because they don’t control the government and will need to compromise to avoid the cliff, Hutchison said Dec. 24 on MSNBC.

Everyone is “going back to the drawing board,” the Texas senator said. “It’s going to take everyone” to reach a deal.

 

Bloomberg News

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