Congress is deadlocked on a host of issues that will need to be solved before the end of the year lest the country plunge off a fiscal cliff at the start of 2013. If no action is taken, all of the Bush tax cuts will expire, the payroll tax will return to higher rates, and the full-sequester spending cuts will go into effect, with the debt ceiling hitting its limit shortly thereafter. Estimates from the Congressional Budget Office released early this week paint a horror story for the start of 2013, with the economy contracting by 1.3 percent.
The New York Times tries to offer a bit of hope this morning, with a story detailing both Democrat and Republican intentions to tackle the tax cuts before the lame duck session:
Both parties in the House and the Senate are eager, perhaps even giddy, at the prospect of voting for their respective versions of an extension of the cuts this summer, well before the due date.
Speaker John A. Boehner, Republican of Ohio, has said there will be a House vote to extend the entire package before the November election. "We shouldn't wait until New Year's Eve," he said in a speech at a recent fiscal conference, "to give American job creators the confidence that they aren't going to get hit with a tax hike on New Year's Day." Democrats are trying to up the ante. On Wednesday, Representative Nancy Pelosi of California, the Democratic leader, called on the speaker to schedule a vote right away.
The only problem is that neither of these proposals stands any chance of passing before the presidential election. Neither party has any incentive to cut a deal before they know who will occupy the Oval Office in 2013. If Romney wins the election, Republicans clearly have the upper hand, especially since they are likely to retake the Senate in that scenario. They could either cut their preferred deal with Democrats during the lame-duck session, or hold off until Romney takes off to push a complete tax cut package that is far more regressive than anything currently on the table. They wouldn't have to concern themselves with gaining any Democratic votes if Republicans retake the Senate and maintain control of the House, since they could reinstate the tax cuts through reconciliation as a budget measure. Mitt Romney basically admitted as much during an interview with Time's Mark Halperin this week. "Of course not," Romney said when asked if Congress and Obama should tackle the problems during a lame-duck session. "I would like to be able to deal with these issues on a structural basis, on a permanent basis as opposed to a stopgap effort that would require unraveling and reevaluation."
Obama and the Democrats have their own incentives to hold off on any deal as well. Nancy Pelosi suggested earlier this week that she would accept a deal that kept all tax rates the same for people earning less than $1 million a year-a far cry from Democrats' earlier goal of raising rates on anyone earning over $250,000-yet even this proposal includes too much additional revenue for Republicans to stomach. But if Obama wins, Democrats instantly gain the upper hand. They could follow much of the same path as the Republicans' ideal scenario-letting the full tax cuts expire on January 1, then reintroducing a new plan-one that would keep the higher rates for wealthy earners and daring Republicans against voting for the tax cut on low and middle income families.
