Obama Makes Last-Minute Fiscal Appeal as Time Grows Short

President Barack Obama made a last- minute appeal for congressional compromise as three senators said the chances were greater than 50-50 for a deal to avert more than $600 million in tax increases and spending cuts scheduled to take effect Jan. 1.
In an interview broadcast today on NBC’s “Meet the Press,” Obama warned of “an adverse reaction in the markets” if Congress doesn’t act.
Senator Lindsey Graham, a South Carolina Republican, said the prospects for a deal before Jan. 1 are “exceedingly good” and will include tax increases on upper-income Americans and represent a “political victory to the president.”
“Hats off to the president, he won,” Graham said on Fox News Sunday. “He stood his ground. He’s going to get tax rate increases -- maybe not $250,000, but upper-income Americans.”
Graham said the “sad news for the country” is that any deal now won’t address debt and will guarantee a fresh fight over deficit reduction when the debt ceiling debate resurfaces early next year. He called on Republicans to have “courage of our convictions.”
Senators Charles Schumer, a New York Democrat, and Jon Kyl of Arizona, the Senate’s No. 2 Republican, assessed the odds of a deal before Jan. 1 at better than 50-50. “I think a little higher than that,” Schumer said on ABC’s “This Week,” while Kyl said, “I don’t disagree with Chuck.”

‘Significant Effort’

At the same time, Schumer said there are “no breakthroughs yet” by bipartisan negotiators in the Senate. Kyl said there is a “significant effort” by “responsible people on both sides of the aisle” because “if we are not able to reach an agreement, it will be dire.”
Schumer said there is bipartisan agreement to patch the alternative minimum tax, adjust the Medicare payment for doctors and extend some business and middle-class taxes. Disagreements remain over how far to extend tax cuts on incomes above $250,000, at what level tax inheritances, extending unemployment benefits and using revenue increases to pay down automatic spending cuts.
The president’s interview with NBC was taped yesterday at the White House. At the other end of Pennsylvania Avenue, Senate negotiators from both parties sought compromise legislation to prevent at least some of the tax increases and spending cuts from taking effect beginning with the new year.
“If all else fails,” Obama said, when a new Congress convenes on Jan. 3 “the first bill that will be introduced on the floor will be to cut taxes on middle-class families.”

Regular Updates

The president was updated throughout the day yesterday as White House aides were in touch with congressional negotiators, said a White House official who wasn’t authorized to make a statement and spoke on condition of anonymity. The official declined to detail any of the discussions.
Senate Majority Leader Harry Reid, a Democrat, and Mitch McConnell, the chamber’s Republican leader, plan to brief party members in closed-door caucuses this afternoon on the status of private weekend talks between their staffs seeking an accord to avert the more than $600 billion in automatic tax increases and spending reductions set to start in January.
House Speaker John Boehner, an Ohio Republican, has called his chamber into session later today to be ready for possible action on avoiding the so-called fiscal cliff. The Senate also is convening.
Whether to extend all tax cuts or only tax cuts on incomes up to $250,000 has been a key sticking point, with Republicans resisting raising wealthier earners’ taxes.

Bare-Bones Bill

In the event the Senate can’t reach a bipartisan compromise that deals with tax-cut extensions, Medicare payments for doctors, estate taxes, automatic spending cuts and other provisions, Obama has asked Senate Majority Leader Harry Reid, a Nevada Democrat, to ready a bare-bones bill for a vote by Dec. 31 that extends unemployment benefits and tax cuts on family incomes up to $250,000.
In that scenario, Obama said, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise also needs approval by the House of Representatives.
Obama said if Republicans agree to raise taxes on wealthy Americans, the revenue would be “sufficient to turn off” the sequester provisions of the so-called fiscal cliff, stopping automatic military spending cuts from going into effect -- a sticking point for many Republicans.

Military Impact

Graham, a member of the Senate Armed Services Committee, said on Fox that he had discussed the impact of the spending cuts on the U.S. military with Defense Secretary Leon Panetta last night and was told that it would mean 800,000 layoff notices at the beginning of the year. The result would be destroying “the finest military in the world at the time we need it the most,” he said.
Asked about the immediate economic impact of going over the fiscal cliff -- a term coined by Federal Reserve Chairman Ben S. Bernanke in February -- Obama said, “It’s hard to speculate on the markets, but obviously I think business and investors are going to feel more negative about the economy next year.”
If Americans’ taxes rise and consumer spending is depressed, Obama said, “then obviously that’s going to have an adverse reaction in the markets.”

Tax Policy

Tax policy remains the most substantial divide in the dispute.
Republicans have resisted rate increases for any income level, maintaining that such a move would hurt the economy and hinder job creation -- especially by businesses that pay their taxes on their owners’ individual returns.
While the economy has shown resilience, politicians are wary of reactions by the public, employers and the markets if a deal isn’t reached by the Jan. 1 deadline.
Failure to address the expiring tax breaks, enacted under President George W. Bush, would mean heavier burdens on taxpayers during the coming filing season, on their regular paychecks and their 2013 tax bills. The nonpartisan Tax Policy Center in Washington estimates the average effect per taxpayer at $3,446 for 2013 if Congress does nothing.
The Standard & Poor’s 500 Index fell for a fifth day on Dec. 28, by 1.1 percent to 1,402.45 at the 4 p.m. close in New York. The benchmark Treasury 10-year yield declined four basis points, or 0.04 percentage point, to 1.7 percent at 5 p.m. in New York, according to Bloomberg Bond Trader.
Any last-minute deal wasn’t expected to address a debt ceiling agreement, making the limit on U.S. borrowing authority the next major issue forcing a fiscal debate. The government will hit the $16.4 trillion limit tomorrow, and the Treasury Department will begin using so-called extraordinary measures to finance about $200 billion of deficits into 2013. That would typically be enough to last about two months.