2:04am

Tue May 29, 2012
It's All Politics

Dire Predictions Amid Another Looming Fiscal Battle

Originally published on Tue May 29, 2012 10:27 am

There are growing warnings on Capitol Hill that the nation could be rolling toward an end-of-the-year fiscal train wreck.

"The looming tax hike will be absolutely devastating," Senate Minority Leader Mitch McConnell, R-Ky., said.

"You can call this a fiscal cliff. You can call it 'Taxmageddon' as others have done. Whatever you call it, it will be a disaster for the middle class," Sen. Orrin Hatch, R-Utah, added.

And Sen. Ben Nelson, D-Neb., said: "It's a tsunami; there's no question about it, and it's coming."

What's coming? The Bush-era tax cuts expire along with the payroll tax break; the nation's borrowing authority bumps against its limit; and huge mandatory spending cuts — half targeting defense — are set to kick in.

All this could trigger another recession, but Congress is not likely to do much about it until after November's election.

Recession Warnings

Last week, the nonpartisan Congressional Budget Office also weighed in: Unless Congress acts to change current law, it said, spending cuts and tax increases could shrivel next year's growth to a mere one-half of 1 percent, which would probably be seen as a recession.

Earlier this month, Speaker John Boehner, R-Ohio, announced that the House will vote to extend all of the Bush-era tax breaks.

"Any sudden tax hike would hurt our economy, so this fall, before the election, the House of Representatives will vote to stop the largest tax increase in American history," he said.

It's quite likely such a bill would pass, but only in the House. Republicans could then use that vote on the campaign trail to accuse House Democrats who might oppose the measure of wanting to raise everyone's taxes. But Democratic leaders insist tax breaks for the very wealthy should not be extended.

Democrats Respond

Senate Majority leader Harry Reid, D-Nev., responded last week to the GOP colleagues who'd written demanding that the Senate renew all the expiring cuts.

"I say to the 41 Republicans and Sen. Hatch who sent me this letter, move on revenues, we could have had a deal a long time ago," he said. "The president said that when we got together at the White House last Wednesday."

Reid has also made it clear he will not back GOP efforts to spare the Pentagon from some $50 billion in automatic spending cuts next year in what's known as "the sequester." The threat of such cuts was meant to spur Congress into agreeing on a 10-year deficit reduction deal, but the deal never came together. Reid says Congress must now face the consequences.

"I don't like sequester. ... It was a hard pill to swallow, but it was the right thing to do," he said. "If we're going to ever reduce the staggering deficits, we're going to have to make some hard decisions."

That sets up a fight over the sequester with defense hawks led by Sen. John McCain of Arizona, the top Republican on the Senate Armed Services Committee.

"I just can't imagine it going through because of what [Defense] Secretary [Leon] Panetta describes as a devastating impact on our ability to defend this nation," he said. "That's our country's first priority."

Tax Revenues

Not all Republicans side with McCain. Alaska Sen. Lisa Murkowski says the sequester is a hammer meant to move Congress to come up with deficit reduction — for which she won't rule out higher tax revenues.

"We've got a responsibility to figure this out," she said. "I'm not going to suggest that we just pull the plug and say that never happened."

Meanwhile, some Republicans and Democrats in the Senate have begun private talks about ways to prevent falling off a fiscal cliff at year's end. One of them, Colorado Democrat Michael Bennet, says everything depends on who wins in November.

"Not to mix a metaphor, but these are huge tectonic plates that are going to shift after this election, when it's not just the tax cuts expiring, but the sequester and the debt ceiling and all the rest," he said. "And I think it's very unlikely that anything's going to be done before the election."

Lobbyist Trent Lott, a former Mississippi senator and Republican majority leader, says he's seen many other lame-duck sessions after big elections, but none like the one coming up.

"If everything stays pretty much status quo, they might do some things in a lame-duck session, if it's like, you know, the House stays Republican, the Senate stays Democrat and Obama stays in," he said. "Any other mixture or any other result, it'll probably all be pushed until next year."

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

It's MORNING EDITION from NPR News. Good morning, I'm David Greene.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne.

On Capitol Hill, there are dire warnings of a fiscal train wreck by the end of the year. That's when all the Bush-era tax cuts expire, as does the payroll tax break. At the same time, the country will hit the limit it can borrow, which will in turn trigger huge mandatory spending cuts - about half of them targeting defense. All of that could trigger another recession.

But as NPR's David Welna reports, Congress may be concerned, but it's unlikely to do anything dramatic to remedy this situation until after the November election.

(SOUNDBITE OF MUSIC)

DAVID WELNA, BYLINE: Composer John Williams wrote this music for Stephen Spielberg's version of the H.G. Wells classic, "War of the Worlds." But as sound tracks go, it might not be entirely out of place on Capitol Hill as well.

SENATOR MITCH MCCONNELL: The looming tax hike will be absolutely devastating.

SENATOR ORRIN HATCH: You can call this a fiscal cliff. You can call it taxmageddon, as others have done. Whatever you call it, it will be a disaster for the middle class.

SENATOR BEN NELSON: It's a tsunami. There's no question about it, and its coming.

WELNA: Those are three senators: GOP leader Mitch McConnell, Utah Republican Orrin Hatch, and Nebraska Democrat Ben Nelson.

Last week, the non-partisan Congressional Budget Office also weighed in. Unless Congress acts to change current law, said the CBO, spending cuts and tax increases could shrivel next year's growth to a mere one half of one percent, which would probably be seen as a recession.

Earlier this month, Republican Speaker John Boehner announced the chamber he presides over will vote to extend all of the Bush-era tax breaks.

REPRESENTATIVE JOHN BOEHNER: Any sudden tax hike would hurt our economy. So this fall, before the election, the House of Representatives will vote to stop the largest tax increase in American history.

WELNA: It's quite likely such a bill would pass, but only in the House. Republicans could then use that vote on the campaign trail to accuse House Democrats who might oppose the measure of wanting to raise everyone's taxes. But Democratic leaders insist tax breaks for the very wealthy should not be extended.

Senate Majority Leader Harry Reid responded last week to the GOP colleagues who'd written, demanding that the Senate renew all the expiring cuts.

SENATOR HARRY REID: So I say to the 41 Republicans and Senator Hatch, who sent me this letter, move on revenues. We could have had a deal a long time ago. The president said that when we got together at the White House last Wednesday.

WELNA: Reid has also made it clear he will not back GOP efforts to spare the Pentagon from some $50 billion in automatic spending cuts next year, in what's known as the sequester. The threat of such cuts was meant to spur Congress into agreeing on a 10-year deficit reduction deal, but the deal never came together.

Reid says Congress must now face the consequences.

REID: I don't like sequester. I wish we hadn't. You know, it was a hard pill to swallow, but it was the right thing to do. If we're going to ever reduce the staggering deficits, we're going to have to make some hard decisions.

WELNA: That sets up a fight over the sequester with defense hawks. They're led by John McCain, the top Republican on the Senate Armed Services Committee.

SENATOR JOHN MCCAIN: I just can't imagine it going through because of what Secretary Panetta describes as a devastating impact on our ability to defend this nation. That's our country's first priority.

WELNA: Not all Republicans side with McCain. Alaska Senator Lisa Murkowski says the sequester is a hammer meant to move Congress to come up with deficit reduction for which she won't rule out higher tax revenues.

SENATOR LISA MURKOWSKI: We've got a responsibility to figure this out. I'm not going to suggest that we just pull the plug and say that never happened.

WELNA: Meanwhile, some Republicans and Democrats in the Senate have begun private talks about ways to prevent falling off a fiscal cliff at year's end. One of them is Colorado Democrat Michael Bennet. Everything, he says, depends on who wins in November.

SENATOR MICHAEL BENNET: Not to mix a metaphor, but these are huge tectonic plates that are going to shift after this election. And it's not just the tax cuts expiring, but the sequester and the debt ceiling and all of the rest. And I think it's very unlikely that anything's going to be done before the election.

WELNA: Lobbyist Trent Lott is a former Mississippi senator and Republican majority leader. He says he's seen a lot of other lame duck sessions after big elections, but none like the one coming up.

TRENT LOTT: If everything stays pretty much status quo, they might can do some things in a lame duck session. If it's like, you know, the House stays Republican, Senate stays Democrat and Obama stays in. Any other mixture or any other result, it'll probably all be pushed till next year.

WELNA: When Republicans hope they'll be playing a stronger hand.

David Welna, NPR News, the Capitol. Transcript provided by NPR, Copyright NPR.