Clock Still Ticking on Fiscal Cliff Deadline

December 26, 2012

Clock Still Ticking on Fiscal Cliff Deadline

As the fiscal cliff deadline rapidly approaches, Democrats and Republicans are finding themselves with increasingly limited options to stave off the mandatory tax increases and spending cuts mandated if a deal cannot be reached. Despite a general consensus that failing to reach an agreement could have far-reaching negative consequences for our still recovering economy, forging a compromise both parties can agree upon has remained an elusive task.

Negotiations between the White House and Congressional Republicans have reached a stalemate. Recognizing the apparent difficulty of crafting a bipartisan bill, Speaker John Boehner introduced legislation in the House of Representatives, which if passed by both houses, would have prevented the fiscal cliff scenario. Known as “Plan B”, Speaker Boehner’s legislation would have made tax cuts permanent for 99 percent of Americans, with only those households earning over $1 million dollars seeing a tax increase. Coupled with legislation to cancel cuts to the military budget, the Plan B approach would have signaled a significant step by House Republicans to avert the fiscal cliff crisis scenario.

Notwithstanding support for Plan B from GOP House Leadership, this legislation was unable to garner widespread backing from a majority of Republicans. As a result of opposition to the tax increases contained within the bill, GOP leadership was forced to withdraw the measure from consideration. The stand-alone legislation preventing military cuts passed narrowly by a margin of 215 to 209.

With the clock ticking, White House and GOP negotiators find themselves having made little progress towards an agreement. The most likely compromise is one which includes a combination of tax revenues and entitlements cuts. Yet, disagreement as to how those spending reductions, tax increases, and entitlement cuts should be apportioned remains a significant sticking point in negotiations. Furthermore, looming in the not so distant horizon is a decision on whether or not to raise the debt limit, a decision that if mishandled has the likelihood of not only negatively affecting the United States’ credit rating but also sending financial markets into turmoil.

There is still time remaining for a bipartisan compromise to be forged by December 31, 2012. However, as we near the fiscal cliff deadline without an agreement, it becomes more likely that government agencies will face mandatory $102 billion in spending cuts and all Americans will see nearly $500 billion in tax increases.