I hope everyone had a wonderful Christmas and holiday season. As we prepare for the New Year let us return once more to the dreaded “fiscal cliff”, which is being dealt with in Washington at quite a leisurely pace.
As we left our hard working public servants before they jetted off for holiday Speaker John Boehner had been flummoxed by his own caucus rejecting “Plan B”, which would have raised marginal tax rates on those earning $1 million and above. The Speaker then punted over to Harry Reid and the Senate, saying it is up to them to produce a workable, passable plan. The President has offered a scaled down deal, with unemployment benefits extended, tax breaks extended for those under $250,000, and some other unspecified items. Those other, non-specified would likely include the AMT Patch, some recommendation on the estate tax, and a modification of the sequester, which would essentially boil down to creating Sequester 2 in 2013. Left unattended would be the debt ceiling, which will rear its ugly head again in 2013. Majority Leader Reid has said he might be willing to put forward a package, but only if Minority Leader Mitch McConnell promises not to filibuster it. And while both Senate and House have actually passed partisan bills to deal with taxes Speaker Boehner referred to the “blue slip” problem that the Senate bill(s) have. (Under the Constitution all revenue raising bills must originate in the House). Minority Leader McConnell, at least publicly, has refused to say whether he will in fact filibuster any Democratic bill. McConnell is a candidate for re-election next year, and is looking over his shoulder at a possible right wing primary challenge, so he is reluctant to be seen as “cooperating” with Democrats on anything. Speaker Boehner, even if he gets a Senate bill passed by majority vote without a “blue slip” problem, has not said if he would allow that bill to get to the House floor if it does not have a “majority of the majority”. If he does allow it forward conservatives are threatening his hold on the Speakership for allowing a bill that would raise taxes to go forward. Those very same taxes that rise for everyone a couple of days later. Are you following me so far? The only thing I have not included is the bill that Leader Reid may file to place both Speaker Boehner and Leader McConnell on double secret probation until this issue is resolved.
The media has focused almost exclusively on the tax issue, and the prospects for drawing sufficient House Republican votes for a (tax) bill to secure passage if the Speaker allows it forward. But it is a bit more complicated than that. You might be able to pick off enough Republicans on a straight tax vote to ensure House passage, but the inclusion of extended unemployment benefits in such a bill could peel those GOP votes off. Would the Democrats support a bill that did not include unemployment benefits? Since the Democrats would be supplying the vast majority of the votes you might think that item would be non-negotiable, and in a traditional compromise that would be true. But this is not traditional in any sense of the word. I anticipate that some vote will be allowed in both chambers, and that McConnell will ultimately vote no, but not filibuster. A bill would get through the Senate. I have real doubts that any bill can pass the House, but there is always hope and optimism to sustain us.
I have been saying that “off the cliff” is the betting favorite, and it still is. I believe that the “line” makes going over a 3 to 1 favorite. The knot that has been tied needs to be untied pretty quickly. I just don’t see these folks getting it done in time.