With Clock Ticking, 'Fiscal Cliff ' Looms Ever-Closer

Transcript

CELESTE HEADLEE, HOST:

Meanwhile, back in Washington, President Obama and members of the U.S. Senate are back in D.C. today, and we've heard that the House of Representatives will return to Washington and begin a work session on Sunday night. All this is in hopes of reaching a deal and avoiding a plunge off the so-called fiscal cliff to, in other words, prevent those sweeping tax hikes and budget cuts that will take place January 1 if a deal is not reached. So politicians have about five days to reach an agreement; that includes the weekend, mind you, and some analysts don't think they'll meet the deadline. If that's true, if they don't meet it, the New Year could bring tax increases for most Americans and deep cuts in the federal budget.

Yesterday, in a letter to Congress, Treasury Secretary Timothy Geithner said that significant uncertainty now exists with regard to unresolved tax and spending policies for 2013, but we didn't really need Timothy Geithner to tell us that. Ron Elving is with us. He's NPR's senior Washington editor, and he joins me here in Studio 3A to help us make sense of what's happening in Washington as this deadline looms closer like a shadow approaching. Right, Ron? Welcome back to TALK OF THE NATION.

RON ELVING, BYLINE: Good to be with you, Celeste.

HEADLEE: Explain to me what's going on 'cause, first, we heard there may be a proposal from the president, then we heard there's no proposal from the president. Where do the negotiations stand?

ELVING: The Senate is here. The president is here. They appear to be talking. The president was on the phone before he left Hawaii with the Republican and Democratic leaders of both the House and Senate. And apparently in one of the conversations that he had, either last night or after he got back here today, he intimated in some way to the Republican leader in the Senate - now, of course he's the minority leader in the Senate, as the Republicans are under 50 percent in that body - and Mitch McConnell got the message one way or another that the president was going to put something new on the table later on today. And so his people came out and told all the reporters on Capitol Hill, we're getting something from the president today, stay tuned.

The White House, of course, has said, hmm, we don't have anything new for you on that, and held it very much at arm's length. Does that mean there is something going on or does it mean that there's only something going on in somebody's imagination? Right now we don't know, but it would stand to reason - it would stand to reason that the president might have something in the works, that he might be being quite about it, kind of doing it on the QT, that the people on Capitol Hill were more eager to get that word out and make it look like the president was making the first move because that's been a big part of the dynamic problem here, who is going to make the first move. And they got that word out. White House, again, is being a little cagey about it. But then we hear, just about, oh, about an hour ago and a few minutes, that the House is going to convene on Sunday night.

HEADLEE: Which tells us?

ELVING: Well, it's 6:30 on a Sunday night. Most of the House members are usually watching "Sunday Night Football." I would not be able to tell you when I last saw the House come into session on a Sunday night. Under any circumstances, they don't meet on Sunday. It's happened, but I can't tell you when it happened last. So this is an extraordinary, unusual circumstance. So that would tend to suggest that somewhere during the day, Speaker Boehner, John Boehner, the leader of the Republicans in the House, where they are the majority, got it in his head that there was going to be something to talk about on Sunday night, whereas there wasn't as of this morning. So perhaps there's something going on. Perhaps the president does have something to talk about with the Senate Republicans. Perhaps it would be something the Senate Republicans could accept and therefore agree not to filibuster. This is crucial.

HEADLEE: Right.

ELVING: If they filibuster, we lose three days, so they have to agree...

HEADLEE: Right.

ELVING: ...not to filibuster. If they do that, then something could pass the Senate in the next couple of days and be ready for the House to take it up on Sunday night. If the House were to then approve it - and that's a huge if, OK?

HEADLEE: Yeah.

ELVING: This is the cliff in the fiscal cliff. Thus far the House hasn't agreed to anything. Last week they wouldn't even agree to a plan from their own speaker that was only going to raise taxes on income above $1 million.

HEADLEE: Above $1 million.

ELVING: And not, by the way, the first million of your income, just after you've reached a million, just that income - they wouldn't agree to that. So if they wouldn't agree to that, it's a little hard to imagine what they're going to accept from the president or something that got through the Senate.

HEADLEE: Well - and the reason you say that it's because the closest the president has even gotten is up to 400,000, right? That's where he moved from 250,000 and then you get raise above that to 400,000. But let's just imagine for a moment, that we're actually listening in on the conversations in the White House. I don't want to put Ron Elving out on a limb, but that's exactly what I'm going to do. What do you think the president - have we gotten any signs on what he might move on?

ELVING: This is really speculative. We are not reporting on something we have been told by the White House.

HEADLEE: Exactly.

ELVING: What we're doing is we're trying to imagine a deal that the Senate Republicans could accept, that the Senate Democrats could accept, and that might have a prayer under certain circumstances of passing in the House - either because House Republicans decided they were so embarrassed by what happened a week ago with the failure of Plan B, or because they're feeling the pressure, they're feeling the heat. Or because they're looking at the polls. Or because they've just decided to give in. Or, John Boehner decided he would go with a mix of Republican and Democratic support. Let the whole House vote, not just the Republican majority as he's been doing.

And under those circumstances, this package might pass. OK. Here we go. 500,000, that's the cutoff. That would be the point at which income would be taxed at a higher rate. The 1990s rates, the rates from the Clinton era, would apply to income after a $500,000. Now, that's half of what John Boehner was saying last week.

HEADLEE: They cut in half...

ELVING: But it's double, what the president wants. The president wants to have income taxes rise on people's income over $250,000. So he would be doubling that and we'd be cutting Boehner's in half. So in a sense that's - in a sense that's meeting in some kind of a middle. And there would be no new higher taxes on unearned income or, if you will, investment income - dividends, capital gains - that would stay where it's been. And there would be, probably in this package, no extension of the unemployment benefits.

And this is crucial for a lot of Democrats, because a couple of million people are going to lose their unemployment benefits as of Tuesday. And that's just going to be an immediate cutoff, and there's not going to be any way to recover it. And that's a big deal for those two million people. For a lot of them, that's their main income. So if that's not in the package, that's going to be a problem for a lot of Democrats to vote for it, but it would get you some Republican votes.

HEADLEE: We're speaking with Ron Elving. He's NPR senior Washington editor. And we're speculating right now about outcomes on the fiscal cliff, mainly because we don't have a huge amount of information about what's really going on.

But let's talk about the debt ceiling. That has been coming up quite a bit. We - I mean, we've heard a lot of people say the fiscal cliff was created by legislators in Washington, right? That in some ways, was their own creation. But the debt ceiling is not. That's a real thing. How does that relate to whether or not they reach a deal?

ELVING: Actually, the fiscal cliff, in a very real sense, was created just in the summer of August 2011. The debt ceiling is also a creation of legislators, it's just is a little bit older, so it seems like it's a little bit more legitimate. It's been around since World War I. But it was the prince of getting World War I financed, and so President Wilson went along with it and he gave Congress the power to say this is as much as we can borrow and no more.

It's been raised scores of times. It's been raised as regularly as so, say, inflation. It just kept going up over the 100 years or 90 years that it has been in existence. So this is something that's been around for a long time and gotten to seem to be some sort of natural thing. But it's actually an artificial creation of Congress, politically, to make themselves feel better about the fact that the country was borrowing money for World War I.

And this has then been around with us since then, and it has to be raised periodically. And just in 2011, the newly elected Republican majority in the House, dug their heels in and said, know what, we're not going to pass that. And we don't really worry about whether or not we're going to default on the obligations, the debts, the bonds of the United States government, because we just - well, we just don't think that's going to happen. So how our other...

HEADLEE: Right. So that made our credit rating go down, right? That was not good.

ELVING: It's really dead. And it made Congress's approval rating go down too. Congress fell into single digits approval after that particular maneuver. And yet here we are again, we're up at the limit at 16.4 trillion - an astonishingly high number, to be sure - and the Republicans in the House are digging in their heels again and saying, why should we lift it? Let's just cut spending so that we don't have to hit that again.

And, of course, any kind of a fiscal cliff agreement would include some cuts and spending, some new revenues and reduce the growth of the deficit and the debt, but it's not going to keep us from hitting 16.4. We're hitting that as of Monday, officially.

HEADLEE: All right. So, you know, there's all these people saying maybe they want us to go over the fiscal cliff. And I'm - I don't want - I don't expect you to debate whether that's true or not, but let's talk about the political mores of that particular decision. Maybe - maybe it would be easier to let the country go over the fiscal cliff for a day or two and then try to get each one of these things passed on their own, right? Separate them out. What about that?

ELVING: Easier? I don't know if they could be passed separately on their own. Usually what happens is that when you got a lot of things - and we've only mentioned a few of them - you know, there's also the AMT, the alternative minimum tax - that's going to clobber a lot of people who are not expecting it, who have never paid alternative minimum tax before. If we don't get some kind of a deal, people are going to find their taxes going up hundreds of dollars per paycheck - per paycheck - in the upper income groups.

There is also the doc fix by which Medicare reimbursement is fixed for positions. If we don't get that fix, a lot of Medicare physicians might look at Medicare and say, I'm not going to take so many Medicare patients anymore because I can't afford it. That's a problem. And all these things are rolled together, and regularly when Congress makes a megadeal, a lot of problems get, at least temporarily, solved. To do each one of these things individually has proven to be difficult, by in large, for Congress. So whether or not in the absence of a deadline, Congress can do each of these things individually, that's a big question mark.

What some people believe is that there will be new pressure on all sides to finally move and get together, despite the, heretofore, lack of political will on all sides. If we have the paychecks getting smaller, if we have the jobless benefits cut off, if we have defense contractors being told that the Pentagon is going to have to cut $55 billion this year, just one year that they didn't expect to have to cut; if all kinds of government agencies are suddenly cutting back, people are going to howl. And if they howl, then finally Congress and the president will get together. That's the theory.

The polls will make them do it. The markets will crash. And, you know, the markets, this is very interesting, the equity markets, the stock market of the United States today was having its fourth bad day - or third bad day - in a row. It's been down all week. And they had a (unintelligible) something like a 200-point drop on the Dow Jones, up to the moment when we found out the House was coming back on Sunday night.

HEADLEE: (Unintelligible).

ELVING: And just over an hour ago, it took off and has almost - not quite, but it's almost wiped out a 200-point loss in an hour. So the market wants to believe there's going to be a deal. The market wants to believe Washington is going to get its act together. The market wants to go up, and this economy wants to recover.

HEADLEE: You're listening to TALK OF THE NATION from NPR News. And let's get back with Ron Elving, NPR senior Washington editor. We're talking about the fiscal cliff and all the possibilities connected to the fiscal cliff. So let's talk about who might suffer the most. I mean, there's the political suffering, right? I mean, polls tell us that if we go over the fiscal cliff, most Americans think that they're going to blame that on the GOP, right? But they may not be the people that suffer the most if this happens.

ELVING: Well, the polls are telling us, right now, that by a fairly substantial margin, maybe two to one, people are more likely to blame the Republicans in Congress than the president. But, you know, I'm not so sure the Republicans entirely buy that analysis. They so feel, they are so sure that the country is, on some level, with them. And if you ask, for example, should the federal government control its deficit problem primarily by cutting spending, you'll get a big percentage for that too.

I believe that's up near 60 percent will approve with that statement. So the Republicans just feel as though they need to get their message right somehow. They did lose the election even though they maintained control of the majority of the House.

HEADLEE: Partly because they misread the polls.

ELVING: I think that's, to some degree, true. They did not understand what the polls were telling them. But they didn't get the Senate. In fact, they lost ground in the Senate. The Republicans did. And while they held control of the House, they lost ground in terms of seats, and they actually took less than 50 percent of the national vote for Congress. The Democrats actually won that vote nationally by a small margin, just about one percent. So it's a little hard to say the country is overwhelmingly with the Republicans, but they still believe it.

And in their own districts, they certainly have the resounding approval of the people who voted for them in their districts. So in a sense, some Republicans, not all, but a portion of the Republicans in the House have this nagging suspicion that if they could just, in a sense, put this back before the voters again, right - without Mitt Romney in the equation, without any other question - just put it before the public again that the public will vote for spending cuts only and no tax increases on anybody.

So they want to re-adjudicate, if you will. They want to rerun the election. They want to take it to the voters again in the public media, if you will, and get a new result, get a new poll. And they think maybe going over the cliff will help them do that.

HEADLEE: But - I hate to interrupt you, Ron, but I thought all the polls I've seen had shown that most Americans, regardless of party, think that raising taxes on the wealthiest citizens is a good idea.

ELVING: No, I wouldn't say regardless of party. Overwhelmingly, if you take the country as a whole, but it's much stronger among Democrats. Independents agree. And there's a sizeable number of Republicans who also agree. But I wouldn't call it a majority among Republicans - who want to tax the wealthiest. But if you take it all over, if you take everyone, then you do get a big, big majority that says we need to raise taxes on the wealthiest. We need to raise taxes on those people who make the very most.

Now, it gets a little more complicated when you start asking, but should we cut spending more than we raise taxes? Then you get a little bit more Republican result from the polls. And if you say to people, should we have this differential for unearned income - that is to say dividends, capital gains, the earnings that people get from their money that's invested - how should those kinds of earnings be taxed? You don't get quite as Democratic an answer to that particular question. The big question, the easy question is, should we tax the wealthy? And people do say yes to that.

HEADLEE: I think, though, that most experts at this point say that whether we get a deal in time before January 1st or not, taxes are probably going to go up for somebody in America come January 2nd. Is that safe?

ELVING: Yes. And it will - well, that is safe. And it will primarily probably be on higher incomes. But let's remember, among other things, what' called the payroll tax, the Social Security tax. That has been cut since the first year of the Obama administration. Most people don't even realize this. They're paying less in their Social Security tax since the stimulus bill of 2009, by two percentage points. Now, that's a lot in terms of that tax, two percentage points.

And they're going to feel it next week if, in fact, we do go over the fiscal cliff and they're employers say, well, now, we got to collect the full payroll tax for Social Security. And a lot of people are going to feel that right away, and they're going to go, wow, my paycheck went down even though I don't make enough money, for example - and this is true of many people - I don't pay enough money to actually owe federal income tax. But here is this payroll tax over here for Social Security, and that's going to go up. And it's going to go up for everybody who pays it.

HEADLEE: That's right. That's the difference between income tax and the payroll tax, exactly that.

ELVING: Exactly, exactly.

HEADLEE: Ron Elving, NPR senior Washington Editor, always laying it out for us. He joined me here in Studio 3A. Ron, thank you so much.

ELVING: Thank you, Celeste.

HEADLEE: Tomorrow, it is TALK OF THE NATION: SCIENCE FRIDAY with the psychology behind New Year's resolutions, why we continue to make them, why we continue to break them. Neal Conan will return on Monday. This is TALK OF THE NATION from NPR News. I'm Celeste Headlee in Washington. Transcript provided by NPR, Copyright NPR.