Still, as they prepare to launch a fresh round of talks Friday at the White House, Boehner and Obama both have delivered nuanced public statements that seem to leave the door open to the historic “grand bargain” both men are said to desire.
While Obama is demanding higher taxes on the wealthy and Boehner is resisting an increase in the top tax rate, Axelrod said, “obviously, there’s money to be gained by closing some of these loopholes and applying them to deficit reduction. So I think there are a lot of ways to skin this cat so long as everybody comes with a positive, constructive attitude toward the task.”
Lawmakers streaming into town for the first time since September are nervously expectant. For two years, the debate over the debt has paralyzed the Capitol. Now policymakers face a particularly brutal decision point.
The fiscal cliff amounts to the largest one-year dose of government austerity since 1968, when Congress raised taxes and was blamed for triggering a recession. Without preventive action, the United States will go on a debt-fighting diet comparable to those recently undertaken in Spain, Italy and the United Kingdom. Simply delaying the pain is not an option, economists say.
“We would be stepping into an economic netherworld of slow growth and high unemployment that would leave us very vulnerable to anything else that goes wrong,” said Mark Zandi, chief economist at Moody’s Analytics. “The window is as far open as it’s ever going to be. It’s the president’s second term. He’s got to go through it.”
The cliff was not constructed intentionally, but it was no accident, either. For decades, Washington has been postponing tough decisions about taxes and spending. The result: dozens of temporary provisions that are forever expiring. This year, they all happen to come due Dec. 31.
Take the Medicare sustainable growth rate, or SGR. Enacted as part of the 1997 Balanced Budget Act, the SGR was designed to make sure payments to providers grew no faster than the overall economy. But doctors screamed when the formula required cuts in 2002, and Congress has since passed legislation, known as the “doc fix,” to temporarily override the SGR.
Because Congress has not changed the underlying formula, the payment cut gets bigger and the doc fix gets more expensive with each passing year. In January, Medicare providers face a payment cut of 27 percent unless lawmakers come up with $18 billion to override the formula for another year.
The cliff is packed with such quandaries. On the tax side, most date to the start of the George W. Bush administration, when the budget was in surplus and the nation was paying down its debt for the first time in a generation. Bush took office on a promise to return the surplus to the taxpayers.
The Bush tax cuts were so big and far-reaching their effects rippled through the code. Suddenly, millions of people’s tax bills were so low they were in danger of being forced into an expensive parallel system known as the alternative minimum tax, or AMT. So that had to be patched, too.