Here is a summary of where things stand on the "fiscal cliff," with just minutes to spare before the midnight deadline, after which the Bush tax cuts will expire and massive automatic spending cuts are implemented.
The White House--meaning Vice President Joe Biden, since President Barack Obama has been AWOL from negotiations--has reached a deal with Senate Republicans, led by Minority Leader Mitch McConnell (R-KY). The rough terms are as follows: an extension of the Bush tax cuts for households earning less than $450,000 per year; an extension of unemployment benefits for the next year; and a delay of the "sequester" spending cuts for two months, pending further negotiations on the precise nature and composition of those cuts.
But the deal is not done.
This evening, Vice President Biden met with Senate Democrats in an effort to win their support. Fox News reports that they are awaiting a budget score from the Congressional Budget Office before they will sign on. Theoretically, the Senate could approve a deal would be midnight--but that looks increasingly unlikely.
In addition, the deal must pass the Republican-controlled House. Speaker John Boehner is said to agree with the deal, but Breitbart News has reported that he may not be able to rely on a majority of GOP members' support for the deal, meaning he would have to rely on Democrat votes--which he said he would not do. The earliest the House could vote on the deal in any case would be when it reconvenes at noon on January 1.
It is possible that a deal could pass both houses of Congress and be signed by the President before January 2, the first day that the "fiscal cliff" effects would actually be implemented. That would mean that Congress had missed the deadline, but that the country would avoid the negative consequences of that political failure.
However, there are several reasons a deal could fail. One is the President's bizarre press conference earlier today, at which he appeared to mock Republicans and hinted at further tax hikes in the future. The event, timed at a sensitive stage in the negotiating process, irked Republicans and damaged whatever trust might have begun. Obama seems to have been torn between the desire to strike a victorious posture, and the real fear--driven, perhaps, by sharply falling approval ratings--that he would be blamed if the "fiscal cliff" caused a new recession.
Another is that the deal Vice President Biden struck with Minority Leader McConnell includes a complex provision, first reported by Breitbart News, that would raise additional short-term revenues by encouraging individuals to invest in "Roth-like" IRA accounts during a month-long window rather than traditional IRA accounts. That would tax individuals today in return for tax-free investment gains in the long run. Democrats are said to be conflicted about the idea, and could well oppose the entire deal because of the adjustment.
If Congress fails to pass, and the President fails to sign, a bill by midnight tomorrow, then the "fiscal cliff" will take full effect on January 2, but negotiations will continue about how to reverse some of its effects.
Negotiations will also take place about the debt ceiling. The Treasury reports that the U.S. has officially hit the $16.4 trillion limit on what it can borrow, and that the government must resort to "extraordinary measures" to cover additional borrowing, which it can only do for a few more weeks. Congress will revisit the debt ceiling negotiations of the summer of 2011, even as it struggles with the aftermath of the "fiscal cliff."
That is where things stand, at six minutes to midnight Eastern Standard Time, on December 31, 2012.
Happy New Year.