Epic clash nearing over tax boosts, spending cuts

Associated Press Modified: June 19, 2012 at 4:30 pm •  Published: June 19, 2012
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WASHINGTON (AP) — A budget showdown for the ages could begin after this year's election and stretch well into 2013 — despite the threat that an impending half-trillion-dollar avalanche of tax increases and spending cuts might rekindle a national recession.

The reason: an unprecedented collision of high-stakes fiscal decisions, coming at a time of intense partisanship, a teetering economy, record federal deficits and, possibly, a new president.

Campaigning for the White House and Congress will make substantive action all but impossible before the elections. And agreement may be nearly as tough during a post-election, lame duck session in November and December, barring a European financial meltdown or Middle East oil supply crisis that demands an immediate response by lawmakers.

"I don't know how a Congress that can't agree on anything in two years is all of a sudden going to come together with the administration in the last 45 days of the year to solve the problem," said Rep. Steven LaTourette, R-Ohio.

No one can confidently predict the outcome of the battle over what many are calling the "fiscal cliff." Much depends on whether President Barack Obama defeats Republican challenger Mitt Romney in November and which party controls Congress.

If Romney wins, Republicans will want to delay decisions until he takes office in January. In that case, a lame duck session would focus on postponing the spending cuts and extending current tax rates for six months to a year. If Obama is re-elected, the fight could easily stretch into 2013 due to the complex issues and the parties' deep differences.

When political and economic stakes reach these levels, the solution almost always comes from party leaders and the White House. Many in Washington expect that to be true this time as well.

Even so, bipartisan groups of senators are seeking middle ground, meeting in a Washington town house, a restaurant and discreet Capitol hideaways. A common starting point has been a debt-reduction plan by a 2010 commission headed by Democrat Erskine Bowles and Republican Alan Simpson.

"If there's any chance to do something either before the election or after the election, somebody has got to have done the homework," said Senate Budget Committee Chairman Kent Conrad, D-N.D., a leader of one bipartisan group of senators.

On Tuesday, a pair of respected budget veterans became the latest experts to prod lawmakers to drop their ideological differences and act.

"You've got to put your mindset on it's almost like a war" threatening the U.S. way of life, Pete Domenici, a Republican and former Senate Budget Committee chairman, told the Senate Finance Committee.

Alice Rivlin, a White House budget director under President Bill Clinton, said failure to act would be "cataclysmic." Rivlin and Domenici headed a separate 2010 bipartisan commission that proposed a federal deficit-cutting plan.

On Jan. 1, tax cuts enacted a decade ago under President George W. Bush will expire. They slashed rates on wages, dividends and capital gains. Also ending will be this year's Social Security payroll tax cut, dozens of tax reductions for businesses and the exemption of millions of middle-class families from the alternative minimum tax — resulting in a one-year tax increase totaling around $400 billion.

Around the same time, $65 billion in spending cuts in defense and domestic programs will begin taking effect, the start of $1.2 trillion in 10-year reductions triggered when last year's congressional supercommittee failed to reach a debt-cutting compromise. Billions in reductions in Medicare reimbursements for doctors will kick in, and emergency benefits for the long-term unemployed will run out.

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