December 22, 2012

High stakes complicate fiscal cliff agreement

Some scary forces will come together in 2013 unless Congress and Obama act to stop them.

The Associated Press

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THE SPENDING

If the nation goes over the fiscal cliff, budget cuts of 8 or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.

THERE'S MORE AT STAKE

All sorts of stuff could get wrapped up in the fiscal cliff deal-making. A sampling:

Some 2 million jobless Americans may lose their federal unemployment aid. Obama wants to continue the benefits extension as part of the deal; Republicans say it's too costly.

Social Security recipients might see their checks grow more slowly. As part of a possible deal, Obama and Republican leaders want to change the way cost-of-living adjustments are calculated, which would mean smaller checks over the years for retirees who get Social Security, veterans' benefits or government pensions.

The price of milk could double. If Congress doesn't provide a fix for expiring dairy price supports before Jan. 1, milk-drinking families could feel the pinch. One scenario is to attach a farm bill extension to the fiscal cliff legislation -- if a compromise is reached in time.

Millions of taxpayers who want to file their 2012 returns before mid-March will be held up while they wait to see if Congress comes through with a deal to stop the alternative minimum tax from hitting more people.

CALL THE WHOLE THING OFF?

In theory, Congress and Obama could just say no to the fiscal cliff, by extending all the tax cuts and overturning the automatic spending reductions in current law. But both Republicans and Democrats agree it's time to take steps to put the nation on a path away from a future of crippling debt.

Indeed, the automatic spending cuts set for January were created as a last-ditch effort to force Congress to deal with the debt problem.

If Washington bypassed the fiscal cliff, the next crisis would be just around the corner, in late February or early March, when the government reaches a $16.4 trillion ceiling on the amount of money it can borrow.

Failing to raise the debt ceiling could lead to a first-ever U.S. default that would roil the financial markets and shake worldwide confidence in the United States.

To avoid that scenario, Obama and Boehner are trying to wrap a debt limit agreement into the fiscal cliff negotiations.

SO WHAT'S THE HOLDUP?

They're at loggerheads over some big questions.

Obama says any deal must include higher taxes for the wealthiest Americans. Many House Republicans oppose raising anyone's tax rates. Boehner tried to get the House to vote for higher taxes only on incomes above $1 million but dropped the effort when it became clear he didn't have the votes.

Republicans also insist on deeper spending cuts than Democrats want to make. And they want to bring the nation's long-term debt under control by significantly curtailing the growth of Medicare, Medicaid and Social Security -- changes that many Democrats oppose.

Obama, meanwhile, wants more temporary economic "stimulus" spending to help speed up a sluggish recovery. Republicans say the nation can't afford it.

Seems like they could just make nice, shake hands and split their differences, right?

But Republican and Democrats alike say they are doing what the voters back home want.

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