Obama, Senate — but not optimism — returning to Washington

Some expect a fiscal deal only after new Congress comes to town

Dec 26, 2012 @ 3:39 pm

By Mark Schoeff Jr.

fiscal cliff, obama, boehner
+ Zoom

Although President Barack Obama and the Senate are returning to Washington on Thursday from their holiday breaks, optimism about a fiscal cliff agreement is staying out of town.

Observers doubt that the Obama administration and Congress can cobble together even a limited deal to avert some of the nearly $600 billion in tax increases and spending cuts scheduled to go into effect on Jan. 1.

“It's clear that while taxpayers view Jan. 1 as the day of the fiscal cliff, Congress and the administration have a different view of when we go over the cliff — with the first or second week of January being an acceptable time period to get a resolution,” Dean Zerbe, national managing director of alliantgroup LP, a tax advisory firm for small businesses, wrote in an e-mail. “Many decision makers in Washington view the expiration of the tax benefits on Jan. 1, and the new Congress sworn in on Jan. 3, as events that will actually help get a decision.”

Not only will the political parameters change after the first of the year — as the lame-duck session of Congress concludes and the new Congress is seated — so will the context of the fiscal cliff negotiations. At that point, nearly every American will be paying more in taxes.

In the new atmosphere, it will be easier to claim victory for reducing taxes, according to Matt Mitchell, a senior research fellow at the Mercatus Center at George Mason University.

“Given the fact that taxes are automatically rising, I don't see an incentive for Congress to get anything done before then,” Mr. Mitchell said.

Investors won't be taken by surprise if the country falls off the cliff — at least for a while.

“That pessimism is already baked into the price of goods, services and equities,” Mr. Mitchell said.

Still, Mr. Obama is clinging to hope.

Before departing for his holiday vacation in Hawaii on Dec. 21, he called for Congress to pass a bill that would extend the Bush-era tax cuts for “middle-class Americans,” continue unemployment benefits and provide a framework for further deficit reduction.

“That's an achievable goal,” Mr. Obama said. “That can get done in 10 days. This is something within our capacity to solve. It doesn't take that much work.”

On Saturday, House Speaker John Boehner, R-Ohio, criticized Mr. Obama for failing to offer a plan during fiscal cliff negotiations that would substantially cut the deficit.

“Instead, he wants more spending and more tax hikes that will hurt our economy,” Mr. Boehner said in the GOP radio address. “And he refuses to challenge the members of his party to deal honestly with entitlement reform and the big issues facing our nation.”

Last week, Mr. Boehner pulled a bill off the House voting calendar that would have allowed tax increases for households making more than $1 million annually when enough conservatives resisted the measure to jeopardize its passage.

Mr. Boehner put the onus for resolving the fiscal cliff squarely on Mr. Obama and the Democratic-majority Senate.

“[W]e only run the House,” Mr. Boehner said. “Democrats run Washington.”

Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, remains optimistic that a compromise can be reached.

“The vast majority of Republicans were going to vote to allow tax rates to go up,” Mr. Goldwein said. Evidence of Republicans' and Democrats' moving closer together is that each side is taking flak from its political base.

“They don't need to give up on principles,” Mr. Goldwein said. “They just need to give up on details in the spirit of compromise.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

How politics are moving markets

The financial services industry stands at the unique intersection of politics and market fluctuation. Clients are anxious and the right adviser can steady he waters. Scott Kubie of Carson Group explains how.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print