Lame duck action could turn ‘fiscal cliff’ into pothole

Talk about it

ST. PAUL — Lots of talk comes from Washington about a “fiscal cliff” approaching Dec. 31, after which all kinds of serious financial problems could appear, but that talk is subsiding.

The federal government could fall off that fiscal cliff if political leaders cannot agree on measures to tame the national debt and reduce spending. But interviews with upper Midwest members of Congress show they are optimistic something will be done, and the problem will end up as what could be described as a “fiscal pothole.”

With tax increases and drastic spending cuts set to take effect Jan. 1 unless there are congressional and presidential agreements, senators and representatives know they must act, Sen. Kent Conrad said.

“There are all these pressures coming to bear on Congress,” said Conrad, a North Dakota Democrat and chairman of the Senate Budget Committee. “Hopefully, they will respond in a positive way. This is our chance to do something our country really needs us to do. The extremes on the right and left will be shouting and will be opposed, but they will oppose anything.”

Conrad, whose position makes him key to any budget and debt deal, and others from the upper Midwest indicate the most likely outcome of a lame duck session that could last the rest of this year is a partial solution, with details to be worked out early in 2013.

What looked dark before the election looks brighter now, Conrad said. “I have been very encouraged by what members have been saying to me.”

Sen. Amy Klobuchar, D-Minn., said Americans can expect continued rhetoric for a while. “But I think there is an underlying sea change that they want to get to work and get the job done.”

The fiscal cliff everyone talks about consists of two major factors: the end of a variety of tax cuts enacted 10 years ago (which, among other things, would raise income taxes for most Americans) and automatic federal budget cuts.

The two fiscal forces are coming together by coincidence. The automatic spending cuts were put in place to force Congress and the president to reach an agreement by Dec. 31. The tax cuts were enacted under President George Bush, with a 10-year lifespan.

The big budget problem is a $16 trillion federal debt — borrowed money used to pay federal bills — that leaders in both parties say needs to be chopped down.

While Democrats and Republicans generally agree spending needs to fall, they don’t agree on how taxes can help the situation. Decisions need to be made yet this year, otherwise $400 billion in tax increases will kick in Jan.1, which economists say could produce a recession.

Newly re-elected Democratic President Obama champions allowing most of the tax breaks approved under Bush to continue in place, but he wants to allow income taxes on people earning more than $250,000 a year to rise.

Rep. Sean Duffy, R-Wis., said he is optimistic a deal can be reached, but that such talk from Obama is frustrating.

“I know the president feels like he has a mandate, but members of Congress feel like they have a mandate,” Duffy said. “You don’t raise any taxes now, especially in a down economy.”

However, he said, since returning to Washington after the election, Duffy said that he has seen a change in fellow Republicans’ attitudes. For one thing, he said, more in his party are willing to close so-called loopholes in the income tax, things such as deductions and tax credits that not everyone can receive.

There are estimates that $800 billion could be raised over several years by eliminating those loopholes, but not raising tax rates.

Obama in the White House Friday, congressional leaders said they were optimistic about reaching a deal this year, but offered no specifics beyond the fact that they plan to meet again after Thanksgiving.

Rep. Collin Peterson, D-Minn., was less optimistic than many in Congress.

“I think the most likely outcome is we won’t get anything done,” he said.

And if something does happen, everything will be decided by congressional leaders and Obama, he said. “We are not going to have anything to say about it. It is going to be yes or no; that’s how it works.”

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