Leaders hopeful fiscal cliff can be averted

in In the News
November 26th, 2012

From The Boston Globe
By Matt Viser and Christopher Rowland
November 16, 2012

WASHINGTON — Top congressional leaders emerged from a meeting with President Obama at the White House on Friday trying to project bipartisan confidence that they would break through gridlock to avert a potential economic catastrophe triggered by budget cuts and increased taxes.

Following an hourlong meeting at the White House, the four top congressional leaders stood by one another outside the West Wing, taking turns calling the meeting “very constructive.” Stocks on Wall Street briefly surged, with renewed optimism that a chief economic roadblock would be removed…

Both sides seem to be looking at the same roadmap — Republicans now concede that they will agree to increase tax revenues, and Democrats say they will agree to more spending cuts — but they are still divided over which route to take.

And despite the show of solidarity, no substantive progress was revealed after the meeting. Major disagreements center on whether tax rates will rise for the wealthiest Americans. Obama has insisted that he wants rates for families making $250,000 or more to return to Clinton-era levels, which means they would go from 35 percent to 39.6 percent. Republicans have adamantly opposed any changes to the rates, saying they instead want to close loopholes or limit tax deductions to raise revenues.

Congressional aides will now turn to the difficult task of trying to hammer out a deal. Obama is heading out on a four-day diplomatic trip to Asia on Saturday, and Congress is in recess next week. But negotiators plan to meet through the week, and Pelosi said a deal should be in place before Christmas…

If no deal is made by the end of the year, tax rates for everyone will increase to the levels they were about a decade ago, before President George W. Bush signed a series of tax cuts. At around the same time, cuts in federal spending, including the military, will be enacted as part of Congress’s budget deal in 2011.

Economists contend such a one-two combination would send the soft economy reeling, leading to job losses and drops in consumer and business spending. The effect would be felt throughout the nation.

Massachusetts officials estimate that state tax collections alone could decline by $300 million in the first six months of 2013 and another $1 billion in the fiscal year beginning July 2013. Spending cuts would strip away millions of dollars in grant funding for local communities — in the middle of their current fiscal years — with no way to make it up.

Those initial grant cuts for Massachusetts communities include $18.2 million for schools, $21.2 million for special education, $7.3 million for community development block grants, and $11.2 million for LIHEAP, the federal heating fuel assistance program for low- and middle-income families.

The state’s private-sector economy also would suffer from a reduction of about $1.5 billion in defense and health spending, according to state estimates…

In the aftermath of the election, both sides have been posturing and outlining their own prebargaining positions. Obama has demanded that any deal include $1.6 trillion in tax increases for the wealthiest Americans, something Republicans oppose.

Republicans say they are willing to make tax code changes that would result in higher payments for the wealthy, but they are more focused on cutting costs among the large entitlement programs such as Medicare, Medicaid, and Social Security.

But at least for one day, a sense of solidarity replaced the bitter divisiveness that broke into the open during the last round of fiscal talks in 2011…

Outside observers say there is reason for optimism.

“Should we be concerned? Yes,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. “But I’m a lot more confident now than I was in the midst of the 2011 debacle that they will get to a resolution.”

Read the full article at BostonGlobe.com.