This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2012/12/30/us/politics/president-obama-urges-last-minute-tax-deal.html

The article has changed 10 times. There is an RSS feed of changes available.

Version 0 Version 1
Obama Urges Senate Leaders to Put Together a Tax Deal Obama Urges Senate Leaders to Put Together a Tax Deal
(about 1 hour later)
WASHINGTON — President Obama urged Congress on Saturday to put together a last-minute tax deal over the weekend to avert large tax increases and budget cuts next year, or at least stop the worst of the economic punch from landing beginning Jan. 1. WASHINGTON — Senate leaders and their aides began searching on Saturday for a formula to extend tax cuts for most Americans that could win bipartisan support in the Senate and final approval in the divided House by the new year, hoping to prevent large tax increases and budget cuts that could threaten the fragile economy.
“Leaders in Congress are working on a way to prevent this tax hike on the middle class, and I believe we may be able to reach an agreement that can pass both houses in time,” Mr. Obama said during his weekly address. “We just can’t afford a politically self-inflicted wound to our economy.” As part of the last-minute negotiations, the lawmakers were also looking to preserve unemployment benefits, prevent cuts in Medicare payments to doctors and limit the impact of the alternative minimum tax, a parallel income tax system that is intended to ensure the rich pay a fair share but that is increasingly encroaching on the middle class.
Senate aides went to work behind closed doors Saturday morning after Democratic and Republican leaders expressed optimism that a deal could be reached. After weeks of fruitless negotiations between the president and Speaker John A. Boehner, Mr. Obama has turned to Senator Harry Reid, Democrat of Nevada and the majority leader, and Senator Mitch McConnell of Kentucky, the Republican leader — two men who have been fighting for dominance of the Senate for years — to find a solution. President Obama said that if talks between the Senate leaders broke down, he wanted both chambers of Congress to call an up-or-down vote on a narrow measure that would extend only the middle-class tax breaks and unemployment benefits.
The speaker, once seen as the linchpin for any agreement, essentially ceded control to the Senate and said the House would act on whatever the Senate could produce. If Congress is unable to act before the new year, Washington will have effectively ushered in a series of automatic tax increases and a dramatic program of spending cuts that economists say could pitch the country back into recession.
Senate Democrats want Mr. McConnell to propose an alternative to Mr. Obama’s final offer and present it to them in time for a compromise bill to reach the Senate floor on Monday and be sent to the House. Absent a bipartisan deal, Mr. Reid said he would accede to the president’s request to put to a vote on Monday a plan to extend tax cuts for all income below $250,000 a year and to renew expiring unemployment compensation for as many as two million people, essentially daring Republicans to block it and allow taxes to rise for most Americans. “We just can’t afford a politically self-inflicted wound to our economy,” Mr. Obama said Saturday in his weekly address. “The housing market is healing, but that could stall if folks are seeing smaller paychecks. The unemployment rate is the lowest it’s been since 2008, but already families and businesses are starting to hold back because of the dysfunction they see in Washington.”
In the Republican weekly address, Senator Roy Blunt of Missouri said the responsibility for crafting a deal rested with Mr. Reid and his majority in the Senate. “The Republican-controlled House has taken a step in the right direction,” Mr. Blunt said. “The House has already passed bills to protect all Americans from the burdensome tax increases.” The fear of another painful economic slowdown appears to have accelerated deal-making on Capitol Hill with just 48 hours left before the so-called fiscal cliff arrives. Weeks of public sniping between Senator Harry Reid, the Democratic leader, and Senator Mitch McConnell, the Republican leader, ebbed on Friday evening with pledges of cooperation and optimism from both.
He added, “But instead of working across the aisle and considering the House-passed plan to protect taxpayers, Senate Democrats have spent months drawing partisan lines in the sand.” On Saturday, though, that sentiment was put to the test as 98 senators waited for word whether their leaders had come up with a proposal that might pass muster with members of both parties. The first votes in the Senate, if needed, are scheduled for Sunday afternoon.
On Saturday, bipartisan agreement still hinged on the Senate leaders finding an income level above which taxes will rise on Jan. 1, most likely higher than Mr. Obama’s level of $250,000. Quiet negotiations between Senate and White House officials were already drifting up toward around $400,000 before Friday’s White House meeting. The two sides were also apart on where to set taxes on inherited estates. “It’s a little like playing Russian roulette with the economy,” said Senator Mark R. Warner, Democrat of Virginia. “The consequences could be enormous.”
But senators broke from a long huddle on the Senate floor with Mr. McConnell on Friday night to say they were more optimistic that a deal was within reach. Mr. McConnell, White House aides and Mr. Reid were aiming for a breakthrough as soon as Sunday. Senator Roy Blunt of Missouri, delivering the Republican weekly address, expressed hope on Saturday that action in the Senate could kick-start a process that prevents the cumulative economic pain from higher taxes, across-the-board spending cuts and the lack of a plan to confront the nation’s growing debt.
“We’re working with the White House, and hopefully we’ll come up with something we can recommend to our respective caucuses,” said Mr. McConnell, who has played a central role in cutting similar bipartisan deals in the past. “We still can avoid going over the fiscal cliff if the president and the Democrat-controlled Senate step forward this week and work with Republicans to solve this problem and solve it now,” Mr. Blunt said.
The emerging path to a possible resolution appeared to mirror the end of the protracted stalemate over the payroll tax last year. In that conflict, House Republicans refused to go along with a short-term extension of the cut, but Mr. McConnell reached an agreement that permitted such a measure to get through the Senate, and the House speaker essentially forced members to accept it from afar, after they had left forChristmas recess. The political drama in Washington over the weekend was given greater urgency by the fear that the economic gains of the past two years could be lost if no deal is reached.
This time, the consequences are more significant, with more than a half-trillion dollars in tax increases and across-the-board spending cuts just days from going into force, an event most economists warn would send the economy back into recession if not quickly mitigated. With the House set to return to the Capitol on Sunday night, Mr. Boehner has said he would place any Senate bill before his chamber and let the vote proceed and the chips fall. The House could also change the legislation and return it to the Senate. The consequences could be apparent almost at once on Tuesday, in employee paychecks, doctors’ offices and financial markets. Skittish investors, as they have during previous congressional cliffhangers, could send the stock market lower on fears of another prolonged period of economic distress. Analysts said the effect would be cumulative, building over time.
If the Senate is able to produce a bill that is largely bipartisan, there is a strong belief among House Republicans that the same measure would pass the House, with a large number of Republicans. While Mr. Boehner was unable to muster enough votes for his alternative bill that would have protected tax cuts for income under $1 million, that was because the measure lacked Democratic support, and was roughly a few dozen votes shy of passage with Republicans alone. Immediately — regardless of whether Congress and Mr. Obama reach a deal — every working American’s taxes will go up because neither party is fighting to extend a Social Security payroll tax cut that has been in place for two years.
“I’ve got a positive feeling now,” said Senator Kay Bailey Hutchison, Republican of Texas, who said a burst of deal-making talk broke out as soon as the leaders returned to the Capitol. But failure to reach a broader deal on taxes and spending would increase taxes even further, returning rates to Clinton-era levels. The tax burden would increase by $400 a year for low-income families and by more than $120,000 a year for the wealthiest families, according to the Tax Policy Center. January paychecks would shrink as employers start withholding more for taxes.
Despite the new optimism, it was clear that any deal in the next three days would only ease the worst aspects of the “fiscal cliff” while leaving big decisions on taxes and spending to the next showdown, most likely by February when Congress must raise the government’s debt limit. A Republican aide briefed on the meeting said the speaker told the other negotiators that House Republicans would not turn off $100 billion in automatic military and domestic spending cuts in 2013 without equivalent cuts elsewhere. Also likely to be left out of a deal is any agreement to raise the debt limit. Many families would also suffer if Congress failed to extend emergency jobless benefits, meaning that 2.1 million unemployed Americans would abruptly stop receiving expected payments.
But Mr. Boehner appeared to recognize that he was no longer dictating terms. According to the aide, the speaker said repeatedly, “Let us know what you come up with, and we’ll consider it — accept it or amend it.” “There’s going to be a hit to people who don’t have much capacity to absorb a hit,” said Christine L. Owens of the National Employment Law Project. “A lot of families are going to be in a bad place, not being able to pay their rent, or their mortgage, or their bills.”
Even before the meeting, Senator Max Baucus of Montana, chairman of the Finance Committee, said “things are starting to jell” around a deal. According to aides familiar with the talks, the plan, in its early stages, centered on a deal that would extend all the expiring Bush income tax cuts up to $400,000 in income. In short order, such changes are expected to dampen consumer confidence and spending, with potentially grave consequences for an economy already struggling to recover momentum.
Some spending cuts would pay for a provision putting off a sudden reduction in payments to medical providers treating Medicare patients. The deal would also prevent an expansion of the alternative minimum tax to keep it from hitting more of the middle class. It would extend a raft of already expired business tax cuts, like the research and development credit, and would renew tax cuts for the working poor and the middle class included in the 2009 stimulus law. “Every day that goes by is this needless self-flagellation,” said Stuart G. Hoffman, the chief economist of PNC Financial Services Group, who estimated that the tax increases and loss of unemployment benefits would reduce take-home pay by $9 billion a week. “The hope is that maybe the pain will get the flagellators to finally stop,” he said.
Democrats from high-tax, high-wealth states have pressed the White House and their leaders to accept a threshold higher than the president’s $250,000, but they appear ready to accept anything that can pass. The fallout would continue to worsen if the inaction and stalemate continue into late January.
“I have a very practical standard to apply: whatever threshold we need to avoid the fiscal cliff,” said Senator Joseph I. Lieberman, a Democrat turned independent from Connecticut. Tens of millions of families will probably be ensnared by the alternative minimum tax, increasing their 2012 tax bill and potentially throwing the coming tax season into disarray. This month, the Internal Revenue Service warned that as many as 100 million filers, out of 150 million, could be affected. Analysts said the I.R.S. might have to delay the start of filing season and the delivery of expected refund checks.
After the meeting, Mr. Obama and officials at the White House appeared visibly optimistic. The president was cheerful with his aides before he walked into the Brady Press Briefing Room to deliver his remarks before assembled reporters. A person briefed on the meeting described a “give-and-take” atmosphere. Again, the lowest-income families are expected to be hit the hardest. “Those early filers, 95 percent of them are expecting a healthy refund early in the year,” said Mark Steber, the chief tax officer of Jackson Hewitt. “They’re the ones who are most counting on that money, who need it to pay their bills.”
“They could have just sat there,” said the person, who was not authorized to discuss the negotiations publicly. “But they didn’t; they were going back and forth, which is a pretty good sign.” Come mid-January, some Medicare patients also might struggle to find doctors to treat them. Without Congressional action, doctors would face two cuts to reimbursement rates: a 26.5 percent reduction in Medicare payment rates from a 1997 law, and a further 2 percent cut adopted to reduce the deficit last year.
In an effort to keep the pressure on, Mr. Obama, for the second time in his presidency, has agreed to appear on NBC’s “Meet the Press” on Sunday, giving him a forum to push for a deal and to provide his view of the state of the negotiations. “I feel I am being held hostage,” said Lee R. Rovik, 70, a Medicare beneficiary in Camdenton, Mo., in the heart of the Ozark region. His doctor’s office has a sign warning that the clinic might have to close if Congress does not fix the Medicare payment formula.
Hoping to stave off the expiration of dozens of farm programs and the carrying out of a 1949 farm law that could double the price of milk, Senate and House leaders were also working on legislation to extend the current farm bill. The most recent farm bill, passed in 2008, expired on Sept. 30. If a new farm bill is not passed or the current one extended, farm programs would lose billions in financing and revert to the 1949 law. “Politicians don’t give a damn about me or the doctor,” Mr. Rovik said. “If the clinic goes out of business, which is entirely possible, where will we go?”
The old law would reintroduce higher government price supports for milk, corn, rice, wheat and other crops and could lead to higher consumer prices and federal spending. By late February or early March, lawmakers will face another economic showdown over raising the nation’s borrowing limit again to avoid a cash-management crisis and a government shutdown. Republicans have already said they intend to use the Congressional authority to increase the so-called debt ceiling to extract cuts from entitlement programs — a threat Mr. Obama has said he will resist.
Around the same time in early spring, the government and its workers would begin feeling the full effects of cuts to defense and domestic spending that were intended to be so severe and indiscriminate that they would force a deal among lawmakers to avoid them.
Without a compromise, the Pentagon and its civilian contractors would face steep reductions in virtually every program. Military officials said those spending reductions — $500 billion over 10 years — would eventually force the canceling or shrinking of projects and large-scale layoffs of military and civilian personnel.
Hundreds of other federal programs would see cuts, beginning in late January and through the year. These include reductions of about 8 percent in the Special Supplemental Nutrition Program for Women, Infants, and Children; Low-Income Home Energy Assistance; and rental housing assistance.
Economists said the spending cuts and tax increases alone would smother the recovery. A strong reaction from the financial markets could amplify that pain, as analysts fear that the economic disruption and political flailing would spook markets, causing investors to flee to the safety of cash or Treasury bonds, preventing businesses from investing and damping consumer confidence.
“It would be a triple whammy,” said Mr. Hoffman of PNC, referring to the tax hikes, spending cuts and confidence effects. “Actually, as many whammies as you could come up with.”

Robert Pear contributed reporting.