Lawmakers have given up on a "grand bargain" to avoid the "fiscal cliff" and fix the nation's long-term debt woes. Instead, the Senate is now working on a plan that would delay the spending cuts and tax increases that will ultimately be necessary to prevent the long-term debt crisis that experts say will be much more damaging than the fiscal cliff.
After a short Christmas break, President Barack Obama and the Senate will be back in Washington, D.C., Thursday, giving themselves only five days until the start of the fiscal cliff. The House is not scheduled to be is session Thursday. Senate Majority Leader Harry Reid will introduce a bill that would extend the Bush-era tax cuts for those making less than $250,000 per year, extend unemployment benefits, eliminate the alternative minimum tax for middle income families, and delay cuts in payments to doctors who see Medicare patients.
The plan would be less favorable to House Republicans than the "plan B" bill that they rejected last week. Reid expects, though, that the House would rather sign onto his plan than be blamed for going over the fiscal cliff. Plan B, introduced by Speaker of the House John Boehner (R-Ohio), would have kept the Bush-era tax cuts in place for all taxable income below $1 million.
The Congressional Budget Office has warned that the combination of automatic spending cuts and tax increases tied to the fiscal cliff would cause a recession. It has also warned, though, that extending current policies would be far worse in the long term because the nation's debt, now at over $16.4 trillion and over $122 trillion in unfunded liabilities, would be financially unsustainable. This is why Obama and Boehner had been working on a "grand bargain."
That deal would have both avoided the fiscal cliff by replacing the spending cuts with entitlement reform, which would reduce the long term rate of growth in government spending, and tax reform that would eliminate some of the market distorting effects of the tax code and raise revenue.
Obama has essentially given up on reaching an agreement with Boehner. On NBC's "Meet the Press" Sunday, NBC chief White House correspondent Chuck Todd said he thinks it's a mistake for Obama to go for Reid's plan C rather than try one more time to cut a deal with Boehner, because it would hurt his chances of getting other legislation, such as gun control, passed in the future.
"I think, politically, the president is making a mistake by going for a small deal. He'll lose leverage as the year goes on. He'll get a big political victory, but he should try one more time for the big deal. ... A deal is within reach, ... they seem to have had it and don't want to try Boehner one more time, but I think they're making a big mistake," Todd said.