Congress and President Obama have delayed some of the nation's toughest decisions until after the election. With the election now over and Americans choosing the status quo – a Democratic president, Democratic Senate and Republican House – political leaders will need to work together before the nation falls off the fiscal cliff.
A slew of tax cuts are set to expire at the end of the year, including the payroll tax "holiday," income tax cuts and a capital gains tax cut. The child tax credit for parents is slated to be reduced from $1,000 to $500. And, tax increases on companies that make health products will begin next year as part of the Affordable Care Act.
Automatic spending cuts are also supposed to go into effect at the beginning of the year – $55 billion in defense spending and $55 billion in non-defense spending, due to the Budget Control Act of 2011.
The conundrum for Congress and President Obama is that the fiscal cliff will likely lead to a recession, but keeping current levels of spending and tax revenue would cause even bigger problems in the future, according to the Congressional Budget Office, because the national debt, now over $16 trillion, would be unsustainable.
The answer, most experts agree, is the so-called "grand bargain" – entitlement reform to reduce the rate of growth in spending and tax reform to boost the economy and raise revenue.
In July 2011, as political leaders were battling over raising the nation's debt limit, Speaker of the House John Boehner and President Obama were close to an agreement on the grand bargain, according to veteran Washington Post reporter Bob Woodward in his new book, The Price of Politics. With a deal almost finalized, Obama went back to Boehner and asked for (according to Obama) or demanded (according to Boehner) more revenue. Boehner refused and did not return to the negotiating table. Obama, using a jilted lover metaphor, went before reporters and complained that he had been "left at the altar."
As most of the nation has been focused on the election, several senators have been working behind the scenes in closed-door meetings to put together a bill that could be passed during the lame-duck session – after the election and before the new Congress is seated. That measure, if passed, could be another temporary measure to delay the fiscal cliff for another six months or so to give the new Congress time to work on another grand bargain.
Senate Majority Leader Harry Reid (D-Nev.) sounded conciliatory Wednesday.
"It's better to dance than to fight," Reid said. "It's better to work together."