5 Days Left To Avoid 'Fiscal Cliff" Extremes

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DAVID GREENE, HOST:

This is MORNING EDITION from NPR News. Good morning, I'm David Greene.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne.

Christmas break was little more than a long weekend for the country's political leaders. President Obama has cut his Hawaiian vacation short to return to the White House. And the Senate is back in session today. There are just five days left to work on getting a deal to avoid the tax hikes and spending cuts known as the fiscal cliff.

NPR's Ari Shapiro is here with an update on what's happening. Good morning.

ARI SHAPIRO, BYLINE: Good morning, Renee.

MONTAGNE: So remind us where this drama left off.

SHAPIRO: Well, last week House Speaker John Boehner put forward what he called Plan B. That was the more conservative alternative to the offer he'd made to the president. But even it was not conservative enough for members of his own party. So on Thursday, Plan B was withdrawn without a vote and Congress left town. Friday night, President Obama made a statement where he urged everyone to go home, drink eggnog, sing Christmas carols, and come back ready to make a deal.

Since then, the White House says there have been staff conversations, but some Republicans leaders on the Hill say there have not conversations across party lines. So in short, we've seen no evidence of progress. As you say, the president comes back today. The Senate is also back today, but the House is not.

MONTAGNE: So what then is happening now?

SHAPIRO: Well, Republican leaders in the House held a conference call yesterday. Afterwards they put out a statement basically putting the ball in the Senate's court. The statement said, in part, the Senate must first act, the lines of communication remain open.

House leaders did not tell members to come back to Washington. They have promised to give members 48 hours notice. But weather in a lot of the country is awful right now. It's the height of the holiday travel season, so even if they did say come back immediately, it could be tough to get people back here in time. For sure we're looking at the weekend at the earliest, if the House were called back into session.

MONTAGNE: OK. But if the House leader - speaker of the House is pretty much putting this in the lap of the Senate, what is the Senate planning to do now that it is in fact back?

SHAPIRO: Well, yesterday Majority Leader Harry Reid's spokesman put out a statement basically saying no, the onus falls on the House. They said the House needs to sign onto a bill that the Senate has already passed, extending tax breaks for income under $250,000. This statement says, in part, quote, "No further legislation can move through the Senate until Republicans drop their knee-jerk obstruction."

The Senate schedule for today includes aid to Sandy victims and renewing a surveillance bill. There's nothing on the schedule about the fiscal cliff. But Majority Leader Harry Reid has said the senators should be ready for fiscal cliff issues and possible weekend sessions.

Basically, Renee, things seem to be at a standstill - pretty much where they were when we left off Friday. And remember, the deadline is Monday night. Treasury Secretary Tim Geithner yesterday said the country will hit its borrowing limit, the debt ceiling, on Monday night. He notified Congress that the Treasury Department can take what he called extraordinary measures to buy a couple more months' time before the country hits the debt ceiling.

But the fact that Treasury needs to do this is just one more indication of how unlikely a deal appears to be right now.

MONTAGNE: Right, and what are we talk - we have Thursday, Friday, Saturday, Sunday, Monday, five days...

SHAPIRO: And there's Monday, the deadline, yeah.

MONTAGNE: Till Monday, midnight. Well, how soon will we feel the effects of falling off the cliff?

SHAPIRO: Well, one immediate impact is that taxes go up on everyone. Some federal unemployment benefits start to expire immediately. And it's possible that we'll see other effects based purely on Washington's inability to solve this problem. For example, the stock market has been pretty stable in all of this. That could change if the January 1 deadline passes without a deal.

And remember, last year in that big debate over the debt ceiling, the U.S. had its credit rating downgraded? Well, at the time the S&P said its decision to downgrade the credit rating was partly due to what it called the difficulties in bridging the gulf between the political parties over fiscal policy.

So it's entirely possible that another failure to reach an agreement of this magnitude could lead to another credit rating downgrade.

MONTAGNE: Well, Ari, you know, I've been following this as much as anybody, I think. But can there be said to be one main sticking point?

SHAPIRO: Broadly speaking, as it has from the beginning, the sticking point is the balance of spending cuts to revenues - that's tax hikes. The failure of Plan B a week ago posed a real problem for these negotiations because it raised the fundamental question of whether House Republicans will go along with any tax hike at all.

House Speaker Boehner has put tax hikes on the table with the White House. But it's unclear that the rest of his party will follow him on that. President Obama, supported by Democrats, has been adamant that any deal must have tax hikes.

Once you get past that threshold, then it's just a question of math. And frankly, when you compare Boehner's offer to the president's, there's really not such a wide gap between them.

MONTAGNE: OK. Well, thanks very much, Ari.

SHAPIRO: You're welcome, Renee.

MONTAGNE: NPR's Ari Shapiro. Transcript provided by NPR, Copyright NPR.