Washington teeters on edge of fiscal cliff
By: Leigh Ann Caldwell / CBS News
Updated: November 26, 2012
Congress returns to work in Washington this week with a to-do list worthy of an overworked single mom, but the issue likely to get the most attention is the so-called "fiscal cliff." As the issue encompasses the entire federal budget and much of the tax code, the outcome of the negotiations will impact most Americans.
With just over a month until the New Year, when the policies constituting the fiscal cliff are scheduled to go into effect, negotiations between President Obama and Congress resume this week and the political jockeying continued in earnest.
In a report released this morning, the White House is predicting economic strain if tax cuts for middle-class families aren't extended. The report by the Council of Economic Advisers and the National Economic Council says taxes on middle-class families will go up $2,200 per year if current tax rates expire and that $200 billion of consumer spending would be lost. In a direct challenge to Republicans who are calling for holding off on raising tax rates for the nation's wealthiest, the White House adds, "There is no reason to hold the middle class hostage while we debate tax cuts for the highest income earners."
On Sunday, Sen. Lindsey Graham, R.-S.C., joined a chorus of Republicans - led by House Speaker John Boehner before Thanksgiving - indicating that he is willing to allow the federal government to take in more tax revenue by limiting some tax deductions and loopholes. He drew the line, however, like most other Republicans, at raising tax rates.
"Republicans should put revenue on the table. We're this far in debt. We don't generate enough revenue. Capping deductions will help generate revenue. Raising tax rates will hurt job creation," Graham said.
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Meanwhile, Sen. Richard Durbin, D-Ill., repeated the position of many Democrats who say the wealthy should pay a higher tax rate. "Let the rates go up to 39 [percent]. Let us also take a look at the deductions. Let's make sure that revenue is an integral part of deficit reduction," said Durbin. The current tax rate for the wealthiest Americans was lowered during the Bush administration to 35 percent. Tax rates for the wealthy - and all Americans - are set to increase January 1 if Congress doesn't act.
But taxes are not the only elephant in the room in regard to the "fiscal cliff": it also includes $1.2 trillion (over 10 years) in automatic cuts to domestic and defense spending that would impact every government program except for Social Security, Medicaid and most of Medicare. Both sides agree that federal spending can be reduced, but the debate over the specifics of what to cut promises to be just as difficult of a negotiation as taxes.
Even though the retirement and health care programs for the poor and retired are not part of the "fiscal cliff," it has become a major part of the discussion as they consume more than one-third of the federal budget - and their share of the budget pie is on the rise.
"I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform," Graham said Sunday, referring to anti-tax advocate Grover Norquist's pledge that many Republicans have signed vowing not to raise taxes.
As Graham pointed out, many Democrats are skeptical about changes to entitlements, distrusting of Republicans who they think want to dismantle the programs. Durbin, meanwhile, said Sunday that he is open to some changes to Medicare and Medicaid that prolong the programs but that Social Security should not be part of the discussion.
"Social Security - set [it] aside. It doesn't add to the deficit," he said. Social Security is viable for another 21 years before retirees would see a reduction in benefits.
Thus the major battle lines are drawn in the "fiscal cliff" debate. And outside groups are working very hard to ensure those battle lines are not crossed.
Labor unions have launched a massive lobbying campaign to press their messages. Union leaders from around the country are traveling to Washington this week to meet with lawmakers on both sides of the aisle.
AFL-CIO spokesperson Jeff Hauser says they have two messages: "Not a single day more of the Bush tax cuts for the two percent" and protect Social Security, Medicare and Medicaid. And a coalition of other unions - the American Federation of State, County and Municipal Employees, the Service Employees International Union and the National Education Association have launched TV ads to put pressure on members of Congress to raise taxes on the wealthy and keep entitlements off the table.
The advertising campaign is targeting moderate Democrats - Sens. Michael Bennett and Mark Udall of Colorado, Sens. Mark Warner and Jim Webb of Virginia and Sen. Claire McCaskill of Missouri - who have indicated a willingness to change entitlements.
Another major player in the fiscal cliff talks is the Campaign to Fix the Debt. The bipartisan organization is chaired by former chief of staff to President Bill Clinton, Erskine Bowles, former Sens. Alan Simpson, R-Wyo., and Judd Gregg, R-N.H., and former Gov. Ed Rendell, D-Pa., and has created a coalition of business executives to pressure Washington politicians to avert the "fiscal cliff." For a grassroots component to the coalition, the organization has launched on online petition that now has more than 300,000 signatures.
But Campaign to Fix the Debt's real heft comes from powerful CEOs of major corporations, including Xerox, Honeywell, GE, that have met with Mr. Obama and have been vocal in the media. They are pushing a bipartisan approach and though they're vague about their positions, the main components of the general framework is similar to what Republicans are saying: simplifying the tax code through reform - not raising rate rates - and entitlement reform. Invoking terms used by Democrats, the coalition insists that those relying on the safety net must be protected and reductions to the federal budget can't be implemented too quickly.
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The group is running ads in local newspapers and online in 17 states and business leaders and supporters of the coalition are traveling to Washington on Wednesday to meet with members of Congress to push their message.
In addition, a small business group, the American Sustainable Business Council, is pushing Congress through a massive letter writing campaign to raise taxes on the wealthy, insisting that a tax increase on the top wage earners will not hurt job creation.
"Huge tax cuts for the richest Americans have not trickled down to increase small- and medium-sized business investment, broad-based consumer purchasing power or job creation," the form letter says.
Regardless of all of this outside pressure, it's still up to Congress and the president to solve the fiscal cliff problem with just over a month until the January 1 deadline. But, as Durbin said on ABC Sunday, "Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made."
Even though gridlock has been the order of business in recent years in Washington, Congress always seems to act when there's a deadline for political disaster (remember the seemingly regular 11th hour aversions to government shutdowns?).
Meanwhile, Sen. Bob Corker, R-Tenn., is insisting that his colleagues not kick "the can down the road" on dealing with the fiscal cliff.
"The fiscal cliff is a deadline of the 112th Congress's making," Corker wrote in an op-ed for the Washington Post on Sunday. "It is our responsibility to solve these problems now."
