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Is Congress Making A 'Fiscal Bluff'?
Originally published on Mon December 24, 2012 1:56 pm
CELESTE HEADLEE, HOST:
This is TELL ME MORE from NPR News. I'm Celeste Headlee in for Michel Martin. Coming up, the U. S. economy has had an interesting year. I don't need to tell you that we're still facing huge hurdles. But on the other hand, the stock market shot up this year and some sectors are thriving. We'll talk about signs of hope in just a few minutes.
But first, not many signs of hope on Capitol Hill. Washington is quiet for the holiday with President Obama and lawmakers out of town. They're expected to return on Thursday in a last minute effort to avoid the fiscal cliff. That's the tax increases and spending cuts that automatically kick in on January 1st if there's no deal and no legislation in place to avoid it.
But we want to talk about what the remaining options are. So Roben Farzad, a contributor to Bloomberg Businessweek joins us. Welcome.
ROBEN FARZAD: Hi, Celeste. How are you?
HEADLEE: I'm doing well. Thanks so much for being with us.
FARZAD: A pleasure.
HEADLEE: Let's take a moment and step back and remind our listeners where things were left on Friday. Late last week, House Speaker John Boehner didn't get enough votes from Republicans in the House to pass Plan B. That's what he called his backup plan. And it would've increased taxes only on individuals earning $1 million or more. So what's happened since then?
FARZAD: Let me tell you what I'm thinking about this. Is everybody's telling me to watch "Homeland," get that on DVD. I'm thinking I'm just going to get me a bag of popcorn and some General Tso's chicken tonight and cuddle up to CSPAN because this is riveting stuff. I mean, I'm just blown away.
FARZAD: It's unbelievable.
HEADLEE: Wait, wait, wait, wait. Tonight the best watching will be CSPAN because - what's happening? I mean, they're going to be filming an empty room, right?
FARZAD: Not. It's not exciting. It's so anti-climatic. And what's amazing about this is this is a doomsday machine that's entirely Washington's own creation. Their histrionics are being pre-manufactured. There's nothing preordained about it.
Where Congress and the president last left it was Boehner tried to get some sort of Plan B through his party. The Tea Party flank was not cooperative. Obama's last offer would set up the top tax rates on dividends and capital gains at 20 percent with the current 15 percent. So they were close to meeting each other halfway but they don't even have unanimity within their own parties.
HEADLEE: All right. Well, here's Senator Kent Conrad of North Dakota. He's chairman of the Senate Budget Committee. He's speaking on Fox News Sunday and he says we can do more.
(SOUNDBITE OF TV SHOW, "FOX NEWS SUNDAY")
REPRESENTATIVE KENT CONRAD: I would hope that we would have one last attempt here to do what everyone knows needs to be done, which is a larger plan that really does stabilize the debt and get us moving in the right direction.
HEADLEE: He's a senator. Is the solution in the Senate?
FARZAD: It could be if Harry Reid could muster enough unanimity there. The question - the problem with this, you know, it's a real noble thing that Senator Conrad said there, but this is all the product of so much can kicking. This all starts off with the George W. Bush-era tax cuts which he got out of his election mandate in 2002.
And in 2010, Washington as a whole kicked the can on extending these tax cuts for two years. Last year, remember as part of the debt ceiling debacle they set up a mechanism which Mr. Bernanke later called the fiscal cliff - I call it the budgetary outcropping - where there would be these automatic $1.2 trillion in spending cuts.
And again this year, they kicked the can on extending a 2 percentage point reduction in the payroll tax. So there's multiple can kicking going on here. And what people don't necessarily appreciate is Congress can be feckless again and do that same thing. Because the obverse, the alternative, it is too scary for them, for Congress to actually have to look at defense cuts, for the president to have to ponder, gosh, am I going to have to increase taxes on part of the middle class in order to get Congress and the Senate to increase taxes on people earning more than $250,000? It is a mess.
HEADLEE: Well, OK. Whether we call it a cliff or an outcropping, are we going to go over it? I mean, there doesn't seem to be very much time left. There doesn't seem to be a lot of movement. If we do go over this cliff, this outcropping, is that terrible for the country?
FARZAD: What the problem is, is it's more of a - you know, to introduce the fifth metaphor into this conversation - more of a deep slope that would hurt the economy into the second and third quarter of 2013. Because the most immediate problems in January is the IRS doesn't know whether it can begin tax filing season in earnest.
You have HR managers saying we don't know what to garnish from wages, if the numbers are going to change. Are we calling Washington's bluff in keeping the status quo, hoping that they get something together? And on top of that, you have a lame-duck Congress. So the legislative process could start all over and all bills proposed or acted on this year in 2012 could die.
So there's a real urgency to get something done when these guys come back from their vacation a couple days after Christmas.
HEADLEE: So you're predicting a deal?
FARZAD: I'm predicting a deal but it could well happen on January 7th, January 8th, after a certain amount of pain is felt. It's a brinksmanship where you go a little past the 11th hour. And these guys are trying right now to call one another's bluff. Who gets more pain incrementally?
Who gets blamed more if we fall over this cliff on January 1st? And I think that the thinking right now is that Congress and Mr. Boehner would take the disproportionate blame.
HEADLEE: Roben Farzad, the contributor to Bloomberg Businessweek. He joined us from Richmond, Virginia. Thanks so much and Happy New Year.
FARZAD: Likewise. My pleasure. Transcript provided by NPR, Copyright NPR.