Let the endgames begin.
After a Christmas holiday, President Barack Obama returned to Washington from Hawaii and the U.S. Senate reconvened Thursday as the deadline approached for going over the fiscal cliff of automatic tax hikes and spending cuts.
However, the House remained on Christmas break, with members warned they could be called back on 48 hours’ notice if needed.
Hopes for a so-called grand bargain that would address the nation’s chronic federal deficits and debt appeared dashed for now, with four days remaining to reach agreement on a smaller plan that would avoid the harshest effects of the fiscal cliff’s tax increases and slashed spending.
With House Republicans unable to resolve the impasse, the focus shifted to the Democratic majority in the Senate to come up with a way forward that could pass the House and get signed into law by Obama.
In the Senate, Majority Leader Harry Reid of Nevada expressed doubt that enough time remained to reach an agreement, especially with the House at least 48 hours from coming back.
“I don’t know, time wise, how it can happen now,” he said as he opened the Senate’s first session back from the holiday.
The White House said Thursday that the president spoke with all four congressional leaders before leaving Hawaii on Wednesday. Spokesmen for Republican leaders of the House and Senate made clear, though, that Reid and Senate Democrats needed to offer a proposal now.
Possible scenarios include a short-term deal now, setting up continued negotiations next year when Obama and a new Congress that convenes in January confront a need to raise the federal debt ceiling and approve further spending to keep the government funded.
Another possibility would be a short-term deal reached after January 1 that would change the political calculus by having legislators vote for cutting the higher tax rates from the fiscal cliff — a much more palatable exercise than the current debate over allowing top rates to increase.
Otherwise, economists warn the full impact of the fiscal cliff could spark another recession. In signs of the potential effect, stocks were lower Thursday morning on increasing doubts about an agreement, and the Consumer Confidence Index sank.
Retiring Republican Rep. Steve LaTourette of Ohio told CNN on Thursday that such an outcome would be entirely due to politics.
“Nobody is willing to pull the trigger” on an agreement because “everybody wants to play the blame game,” he said. “This blame game is about to put us over the edge.”
The principal dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under President George W. Bush while allowing higher rates of the 1990s to return on top income brackets.
Obama campaigned for reelection on keeping the current lower tax rates on family income up to $250,000, which he argues would protect 98% of Americans and 97% of small businesses from rates that increase on income above that level.
Republicans oppose any kind of increase in tax rates, and House Speaker John Boehner suffered the political indignity last week of offering a compromise — a $1 million threshold for the higher rates to kick in — that his colleagues refused to support because it raised taxes and had no chance of passing the Senate.
Reid lambasted Boehner in his remarks Thursday, saying the speaker wanted to wait until after the new House chooses him as speaker on January 3 before proceeding with a compromise that would pass the chamber today.
Boehner was “more concerned about his speakership than putting the country on firm financial footing,” Reid charged.
In response, Boehner’s spokesman said Reid should stop talking and instead take up legislation passed by the House that would avert the fiscal cliff.
“The House has already passed legislation to avoid the entire fiscal cliff. Senate Democrats have not,” said the spokesman, Michael Steel.
Reid and Democrats reject the GOP proposals, which would extend all the Bush tax cuts and revamp the spending cuts of the fiscal cliff, as insufficient steps that would shift too much of the burden of deficit reduction on the middle class.
Instead, Reid called on Boehner to allow a vote on a Senate-passed measure that would implement Obama’s plan to extend tax cuts to the $250,000 threshold.
Rep. Nan Hayworth, R-New York, acknowledged Wednesday that a deal will have to include some form of higher rates on top income brackets, but she said her party would fight to make it as minimal as possible.
Hayworth also made clear to CNN that a limited agreement was the most to expect for now, saying: “I don’t think we’re going to get the big plan in the next six days.”
A statement Wednesday by Boehner’s leadership team said the Senate must act first on proposals already passed by the House but rejected by Senate leaders and Obama.
“If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House,” the leadership statement said. “Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments. The House will take this action on whatever the Senate can pass, but the Senate first must act.”
Obama and Democrats have leverage, based on the president’s reelection last month and Democratic gains in the House and Senate in the new Congress. In addition, polls consistently show majority support for Obama’s position on taxes.
The Gallup daily tracking poll released Wednesday showed 54% of respondents support Obama’s handling of the fiscal cliff negotiations, compared with 26% who approve of Boehner’s performance.
A senior Senate Democratic source told CNN on Wednesday that Reid has made clear in private conversations that he will need assurance that any plan can pass both the Senate and the House before he will bring it up.
“It is to nobody’s advantage to have a failed Senate vote at this point,” the source said on condition of not being identified. “This will be the last train we will have, and there is no sense in it leaving the station before we have assurance it will get through.”
Remaining questions include whether enough Republicans will support a compromise acceptable to Democrats, and whether Senate GOP leader Mitch McConnell will allow a simple majority vote to take up and pass any proposal, or stick to the filibuster level of 60%.
“We believe very strongly a reasonable package can get majorities in both houses,” a senior White House official said. “The only thing that would prevent it is if Senator McConnell and Speaker Boehner don’t cooperate.”
Some Senate Democrats have discussed holding off on bringing up a proposal until the final days of 2012 to increase pressure on Republicans to support avoiding higher taxes on everyone due to the fiscal cliff
While the focus now is on a possible agreement in coming days or weeks, anti-tax crusader Grover Norquist told CNN this week that the nation should gird for long-range battle.
“It’s four years of a fight. It’s not one week of a fight,” said Norquist, who has threatened to mount primary challenges against Republicans who violate a pledge they signed at his behest against ever voting for a tax increase.
He predicted “a regular fight” when Congress needs to authorize more government spending and raise the federal debt ceiling in coming months.
“There the Republicans have a lot of clout because they can say we’ll let you run the government for the next month, but you’ve got to make these reforms,” he said.
On Wednesday, Treasury Secretary Timothy Geithner informed Congress that the government would reach its borrowing limit at the end of the year — in five days’ time — but could take steps to create what he called “headroom” for two months or so.
However, Geithner said uncertainty about the fiscal cliff negotiations and possible changes to the deficit situation made it difficult to predict precisely how long the government’s steps to ease the situation would last.
While both sides say they want to avoid the fiscal cliff, signs are emerging that a deal would come after the new year to blunt the harshest impacts.
Under that scenario, the new Congress convening in early January would vote to lower taxes from the higher rates that will go into effect in January when the Bush cuts expire, with the new top rates staying intact.
Before heading to Hawaii last Friday, Obama called for Congress to come back after Christmas and work with him on a limited agreement to prevent tax hikes on the middle class, extend unemployment insurance and set a framework for future deficit reduction steps.
The GOP opposition to any kind of tax rate increase has stalled deficit negotiations for two years and led to unusual political drama, such as McConnell recently filibustering a proposal he introduced and Thursday night’s rebuff by House Republicans of the alternative tax plan pushed by Boehner, their leader.
Reid and other Senate Democrats say House Republicans must accept that an agreement will require support from legislators in both parties, rather than a GOP majority in the House pushing through a measure on its own.
He insisted that a Senate-passed plan with Obama’s $250,000 threshold would pass the House if Boehner would allow a vote. However, the Senate proposal is held up on constitutional grounds, because legislation that increases revenue must originate in the House.
Boehner and Republicans complain that the Senate has refused to take up any proposals they have passed in the past two years. Reid argues that the GOP measures amount to a conservative wish list of unacceptable spending cuts and reforms intended to shrink government and weaken entitlement programs vital to senior citizens, the poor and the disabled.
Some House Republicans have said they would join Democrats in supporting the president’s proposal in hopes of moving past the volatile issue to focus on the spending cuts and entitlement reforms they seek.
The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.
Now, legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as reforms to popular entitlement programs such as Social Security, Medicare and Medicaid.
The two sides seemingly had made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.
Obama’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also included a new formula for the consumer price index applied to some entitlement benefits, much to the chagrin of liberals.
Called chained CPI, the new formula includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.
Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.
Liberal groups sought to mount a pressure campaign against including the chained CPI after news emerged this week that Obama was willing to include it, calling the plan a betrayal of senior citizens who had contributed throughout their lives for their benefits.
For his part, Boehner conceded on increased tax revenue, including higher rates on top income brackets and eliminating some deductions and loopholes.
CNNMoney’s Jose Pagliery and CNN’s Brianna Keilar, Jessica Yellin, Deirdre Walsh, Ted Barrett and Kevin Liptak contributed to this report.
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