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Originally published December 23, 2012 at 9:05 PM | Page modified December 24, 2012 at 4:11 PM

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Hope to end 'fiscal-cliff' impasse shifts to Senate

The effort to avoid the "fiscal cliff" is moving from the gridlocked House of Representatives and toward the Senate, where some Republicans on Sunday endorsed a version of President Obama's call for a partial deal that would insulate most Americans from the tax increase but defer a resolution on spending.

The New York Times

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WASHINGTON — With a little more than a week for lawmakers to avert huge tax increases and spending cuts, attention is turning from the gridlocked House to the Senate, where some Republicans on Sunday endorsed President Obama's call for a partial deal to insulate most Americans from the tax increases but defer a resolution on spending.

Sen. Kay Bailey Hutchison, R-Texas, and Sen. Johnny Isakson, R-Ga., implored Senate leaders to reach an accommodation with Obama when Congress returns Thursday, even if that means that taxes would go up for those with high incomes but that spending cuts would be put off.

Hutchison, appearing on the CBS program "Face the Nation," said the tax cuts signed into law by President George W. Bush should be extended "at a reasonable salary level."

"We can't let taxes go up on working people in this country," she said, backing Obama's calls for a stripped-down temporary measure. "It is going to be a patch because, in four days, we can't solve everything."

The failed attempt Thursday by House Speaker John Boehner to attract enough Republican support for legislation that would have prevented tax increases on income below $1 million left little chance for a "grand bargain" on deficit reduction.

It also shifted the action to the Senate as the last hope to stop more than a half trillion dollars in tax increases and across-the-board spending cuts from kicking in on Jan. 1.

The president urged senators to take up legislation extending the Bush-era tax cuts on income under $250,000 and preventing the expiration of unemployment benefits, while delaying the defense and domestic spending cuts to allow negotiations on a deficit deal to continue.

The hope is that the less polarized Senate will be different from the House. It is run by Democrats and includes several Republicans who are openly backing a deal.

"The president's statement is right," Isakson said Sunday on the ABC program "This Week." "No one wants taxes to go up on the middle class. I don't want them to go up on anybody, but I'm not in the majority in the United States Senate, and he's the president of the United States."

"The truth of the matter is, if we do fall off the cliff after the president is inaugurated, he'll come back, propose just what he proposed yesterday in leaving Washington, and we'll end up adopting it," Isakson continued. "But why should we put the markets in such turmoil and the people in such misunderstanding or lack of confidence? Why not go ahead and act now?"

Democratic leaders say they will move forward on legislation this week only if Sen. Mitch McConnell of Kentucky, the Republican leader, can assure them that it will not be filibustered, and that once it is passed, Boehner will bring it to a vote in the House.

McConnell has played the role of congressional deal closer before. Last year, he engineered a way to raise the nation's statutory borrowing limit that satisfied Republicans and Democrats alike. He also threw his weight behind an extension of the expiring 2-percentage point cut in the payroll tax, even after House Republicans tried to block it.

But in this case, neither he nor the junior members of his leadership have given any indication that they will intervene.

"It's hard to overstate how little is going on," said a senior Democratic leadership aide in the Senate, indicating what most lawmakers say in private: The country is likely to miss the Jan. 1 deadline.

Investors are anticipating a turbulent week in the markets if the White House and Congress continue their standoff. Last Friday, the Standard & Poor's 500-stock index fell nearly 1 percent as pessimism mounted over the prospect of any deal being reached.

Republican leaders in both chambers of Congress appear stymied by a conservative wing that will not tolerate a vote on legislation that even tacitly allows taxes to rise. Obama, speaking to reporters Friday, left critical details out of his description of the plan he wants Congress to pass. Although he favors allowing the current estate-tax rate of 35 percent on inheritances over $5 million to rise to 45 percent on estate values over $3.5 million, for example, he did not say how such taxes should be treated as part of his stopgap fiscal plan. If nothing is done, the estate tax will jump to the Clinton-era level, 55 percent, on estate values over $1 million.

Nor did the president say what he wanted to do about expired business-tax provisions, like the research and development tax credit, which is set to disappear Jan. 1. He gave no instructions about a long-delayed law that, absent congressional action this week, would sharply cut reimbursements for physicians treating Medicare patients, starting next month.

The impending cuts were set in motion last year when the Budget Control Act ended an impasse over raising the nation's borrowing limit with a deal designed to hurt both parties if they did not strike an agreement later on. A committee came up with at least $1.2 trillion in cuts over 10 years that would come automatically, half to national security, half to domestic programs.

The measure that Obama and Democratic leaders are considering would contain all the provisions of a tax bill that the Senate passed in July, according to a Democrat familiar with the discussions. That bill included an adjustment to the alternative minimum tax — a parallel income tax that is designed to make sure the affluent do not escape taxation but that is increasingly hitting the middle class — as well as several tax credits for middle- and low-income workers that also are due to expire at the end of the year.

Both Boehner and McConnell are dealing with rising pressure from the right. The conservative website Breitbart.com stoked passions in conservative circles when it reported that a handful of Republicans were considering a challenge to Boehner's speakership when the 113th House votes to elect a speaker on Jan. 3.

Boehner critics took to Twitter to keep up the pressure on him not to return to negotiations with Obama.

With McConnell's own re-election bid coming in 2014, Democrats are worried that he will do nothing to shift the anger onto himself — especially if the speaker has no intention of bringing a Senate-passed fiscal bill to the floor before the end of the year.

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