Congressional Leadership Lays Out Battle Lines on Fiscal Cliff

Election celebrations cut short as lame duck Congress prepares to address looming fiscal cliff.

House Speaker John Boehner and Senate Majority Leader Harry Reid address reporters on Nov. 7, 2012.
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With the dust from Election Day just coming to settle, the battle over the looming "fiscal cliff" is already starting to brew.

Democrats, who have long touted a plan to raise taxes on those making more than $250,000, claim to have a new mandate on how to tackle automatic budget cuts and tax reform, thanks to their gains in the senate and the re-election of President Barack Obama. Republicans, meanwhile, are already starting to draw deep, definitive lines in the sand.

"American people want us to work together. They want a balanced approach to everything, especially this situation," Democratic Majority Leader Harry Reid said during a press conference Wednesday. "There was a message sent to us by the American people based on the campaign, and that is that people making all this money have to contribute a little bit more."

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Democratic Senatorial Campaign Committee Chairwoman Patty Murray laid out a similar bargaining chip for Republicans Wednesday.

Murray says her new majority is ready to go to work, but that they need their Republican counterparts to put tax cuts for the richest Americans back on the table.

House Speaker John Boehner announced, however, he was hoping for an overhaul of the tax system that would increase revenue through closing tax loopholes, rather than raising taxes for higher-income Americans.

"It won't be solved simply by raising taxes or taking the plunge off the fiscal cliff," Boehner said Wednesday. "A balanced approach isn't balanced if it means we increase the amount of money coming into the coffers of government, but we don't cut spending at the same time."

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Boehner warned that Republicans wouldn't negotiate on taxes without spending cuts, but he welcomed the president to start negotiating sessions on Capitol Hill.

"Mr. President, this is your moment. We are ready to be led," Boehner said.

Reid says he's still optimistic that the Republicans will play ball during the lame duck session, but pundits are not convinced. "Lame duck sessions usually don't accomplish much, so you always bet against them," says Larry Sabato, a political scientist at the University of Virginia. "But we all remember the surprise agreement on taxes reached by both parties and the president in December 2010. Maybe-only maybe-Obama will reach out to the GOP and try to solve at least parts of the fiscal cliff dilemma now."

Sarah Binder, a fellow at the Brookings Institution, doesn't foresee the do-nothing Congress will look any different post election.

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"Lame duck faces sequestration, but I don't think that it will get solved," Binder says. "I think they will kick the can into the winter. There is incentive to tackle these issues, but it is easier said than done."

If the 112th Congress can't reach a deal by the end of December, Bush-era tax cuts expire and nearly $1 trillion of automatic budget cuts go into effect. But some experts warn kicking the can down the road might not be as dire as it sounds.

Patrick Lester, director of federal fiscal policy for OMB Watch, conducted a study that says the White House could potentially keep sequestration at bay for a few weeks if Congress punts until after the New Year.

"Once we have gone over the cliff, the president and OMB have some tools at their disposal," Lester says.

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He argues the fiscal cliff is more of a fiscal slope.

"Cuts don't take place right away. The administration can prevent the worst of sequestration from happening for several weeks," Lester says.

The Office of Management and Budget can speed up the rate it funds federal agencies, allowing federal agencies to borrow funds from later on in the year to pay for immediate costs.

"Essentially, you are using a credit card. You can't do it forever, but it could keep everything going for a few weeks," Lester argues.

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Lester says the other option is for federal agencies to do the exact opposite and pinch their pennies in the beginning of the year. Then if sequestration doesn't occur, they can use the funds later in the fiscal year, sparing major programs—like Medicaid, Social Security, and major chunks of the defense budget—that might have been devastated by sequestration.