Congress remains divided as ‘fiscal cliff’ nears

• Democrats reject counteroffer proposed by Republicans Dec. 3

Staff Report

As the nation inches closer to a “fiscal cliff,” set to begin Jan. 1, 2013, the seemingly great divide between Democrats and Republicans in Washington, D.C., appears as wide as ever.

After Democrats presented their own plan to avoid the fiscal cliff last week, Republicans in Congress offered a counterproposal Dec. 3. However, the Republican debt reduction plan reportedly does not concede on the main issue dividing Republicans and Democrats — higher tax rates for the wealthy.

President Barack Obama presented a plan last week that would reduce borrowing by more than $4 trillion over the next decade. The Republicans’ plan would aim to do the same. However, the plan presented by the Obama administration would also reportedly raise $1.6 trillion in new revenue, double the amount in the Republican plan. Obama’s plan would also produce only about $350 billion in savings from Medicaid and Medicare, the largest drivers of borrowing.

Obama’s plan frustrated Republicans, with U.S. Speaker of the House John Boehner, R-Ohio, calling it the president’s “la-la-land offer.”

The Republicans’ Dec. 3 counterproposal reportedly used as its framework a plan presented by Democrat Erskine Bowles in November 2011. Bowles’ plan aimed to raise new revenue through an overhaul of the tax code and also called for cutting $600 billion from federal health programs, partly by increasing the Medicare eligibility age from 65 to 67, and saving $200 billion by applying a less-generous measure of inflation to all federal programs, including Social Security benefits.

The plan would aim to reduce borrowing by $2.2 trillion through 2022, or by as much as $4.6 trillion when spending cuts, interest savings and reductions in war spending are considered.

The Republicans’ plan would raise tax collections by $800 billion over the next decade by removing all new tax money from households earning more than $250,000 a year, the same group Democrats are targeting for higher tax rates, and raising the money by eliminating deductions.

The Republican proposal was included in a letter to Obama. In addition to Boehner, the letter was signed by U.S. Rep. Eric Cantor, R-Va.; U.S. Rep. Paul Ryan, R-Wis.; Majority Whip Kevin McCarthy, R-Calif.; Ways and Means Committee Chairman Dave Camp, R-Mich.; Energy and Commerce Committee Chairman Fred Upton, R-Mich.; and GOP Conference Chairman Cathy McMorris Rodgers, R-Wash.

The offer reportedly does not address a looming battle over the federal debt limit, which will soon need to be raised above $16.4 trillion. The offer also fails to provide any plans for how to carry out the debt-reduction framework and avoid the fiscal cliff, leaving the details open to negotiation, according to Republicans.

Boehner told reporters Dec. 3 that the Republicans’ plan was “a credible plan that deserves serious consideration by the White House.”

Democrats, however, said the Republicans’ proposed cuts to social safety-net programs would outweigh higher taxes. They also said Republicans had yet to explain how they would raise additional tax revenue without imposing new burdens on middle-class Americans.

The Republican letter released today does not meet the test of balance,” White House Communications Director Dan Pfeiffer said in a statement. “In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill. Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit.”

Brendan Buck, a spokesman for Boehner, said in response, “If the president is rejecting this middle-ground offer, it is now his obligation to present a plan that can pass both chambers of Congress.”

Fiscal cliff

Federal Reserve Chairman Ben Bernanke popularized the term “fiscal cliff” in late February 2012 when he stated before the House Financial Services Committee that “a massive fiscal cliff of large spending cuts and tax increases” would take place Jan. 1, 2013.

Essentially, if a number of laws are left unchanged, the result could be an increase in taxes, cuts in spending, and a corresponding reduction in the budget deficit beginning in 2013.

The deficit — the difference between what the government takes in and what it spends — is expected to be reduced by roughly half in 2013. That reduction is the cliff.

The Congressional Budget Office (CBO) estimates the sudden reduction will likely lead to a recession in early 2013, with the pace of economic activity picking up after 2013.

Laws leading to the fiscal cliff include tax increases as a result of the expiration of the George W. Bush tax cuts and spending cuts under the Budget Control Act of 2011.

The Budget Control Act of 2011 was enacted as a result of the failure of the 111th Congress to pass a federal budget and, therefore, as a compromise to resolve a dispute concerning the public debt ceiling.

Deficit spending previously appropriated by Congress was bringing the federal government’s total debt close to the statutory ceiling. Republicans in Congress refused to approve an increase in the ceiling, unless deep spending cuts were made to come closer to a balanced budget and reduce the amount of national debt that was accruing.

The Budget Control Act included an immediate increase in the debt ceiling, along with a mechanism for facilitating two additional increases. It also provided for automatic spending cuts to begin Jan. 2, 2013.

From the Dec. 5-11, 2012, issue

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