No Fiscal Cliff Deal Yet, Failure to Fix Sequestration "Dereliction of Duty" Says Blakey

With half of the 48 hours gone already, Senate Democratic and Republican leaders still have not reached a deal to avert the fiscal cliff.   Meanwhile, Aerospace Industries Association (AIA) President Marion Blakey issued a stern warning today about the impact on the aerospace sector if sequestration goes into effect.

After a meeting at the White House yesterday,  Senator Democratic Leader Harry Reid (NV) and Republican Leader Mitch McConnell (KY) agreed to spend the weekend trying to reach an agreement that would pass the Senate and, hopefully, the House before the clock strikes midnight on Monday, December 31.  A deal is expected to be presented to their respective caucuses tomorrow afternoon.  

The Senate was in session Thursday and Friday, but not today.  The House has been in recess since before Christmas.  Both chambers are scheduled to meet tomorrow in a rare Sunday session.  House Majority Leader Eric Cantor (R-VA) alerted Members that the House could remain in session through January 2.   That is the last possible day for the 112th Congress.  The 113th Congress, with new and returning members elected on November 6, begins on Thursday.  All pending legislation dies at the end of a Congress.   Democratic Senators reportedly are drafting legislation to be introduced as soon as the 113th Congress convenes to cut tax rates if no agreement is reached before then.

Few details have been made public about what progress is being made other than that tax rates remain at the heart of the disagreement.   Republicans have insisted all along that tax rates should remain the same for all income levels while President Obama wants tax rates for the wealthiest individuals to return to levels prior to the George W. Bush Administration.  President Obama is calling for rates for those who earn over $250,000 to go up, but recently indicated he would compromise at $400,000.   House Speaker Boehner attempted to win support from his Republican caucus for the higher rates to apply only to those with incomes $1 million or more, but that was rejected.

The tax increases — not only from the expiration of the Bush-era tax cuts, but a number of other expiring provisions such as adjustments to the Alternative Minimum Tax, estate tax reductions, tax credits for college tuition, and the payroll tax holiday — are only one part of the fiscal cliff scenario.   Extended unemployment benefits will expire and Medicare reimbursements to doctors will be cut if Congress does not act. 

Another leg of the stool is sequestration — deep cuts to defense and non-defense discretionary spending.  AIA has been leading the charge all year on highlighting the dire impacts to the defense aerospace sector as well as NASA and NOAA if the spending cuts take place.  Under the Budget Control Act (BCA) of 2011, defense spending would be cut 9.4 percent and NASA and NOAA (and other government non-defense discretionary spending) would be cut 8.2 percent. 

Blakey starkly warned today that if Congress does not fix the sequestration problem it will be a “grave dereliction of duty.”  Agreeing that budget cuts are needed to deal with the deficit, she insisted that sequestration is “the wrong way to do it” and a “mindless meataxe approach that will cause immense disruption and harm our economy and national security.”

Republicans agreed to the defense cuts when the BCA was passed in August 2011, but changed their minds this year and now are seeking to exempt defense from the cuts and reduce government spending elsewhere in exchange, such as by entitlement reform or changes to the tax code (but not tax rates).  Democrats want at least some cuts to defense, for which spending mushroomed during the past decade with the Iraq and Afghan wars.

President Obama said in his weekly address today that if all else fails, he wants the Senate to vote on a modest package that would keep tax rates at their current levels for people with incomes under $250,000, extend unemployment insurance, and set the stage for future progress on the other issues.  He said he believes such a package could pass both the House and Senate if it is allowed to come to a vote.  “That’s the way this is supposed to work,” he said, adding that “We just can’t afford a politically self-inflicted wound to our economy.”

In the Republican response, Senator Roy Blunt (R-MO) criticized Democrats on a broad range of issues ending with his own warning against going over the fiscal cliff.  He gave no hint of what compromise might be in the works, reiterating Republican assertions that it is up to the President to lead.

In essence, today seems like politics as usual.  For those who want to avoid falling off the fiscal cliff, one can only hope that the behind-the-scenes deliberations are more productive.