Last-Gasp Fiscal-Cliff Deal Fails as Obama, Congress Deadlock Again

Obama and Congress are still squabbling as talks hit a wall. Howard Kurtz reports on the final scramble.

It may be a glimmer of hope, or it may be another false alarm. But there appears to be some movement in the long-stalled fiscal-cliff talks.

With John Boehner and Harry Reid stepping to the sidelines, the negotiations have come down to two men: Joe Biden and Mitch McConnell. The vice president and Senate minority leader were batting around proposals by phone until midnight Sunday and appear to have closed the gap toward a last-minute agreement—albeit one that does nothing to deal with the deep spending cuts that would automatically take effect on Tuesday.

Word trickled out that Senate Republicans would agree to extend tax cuts for individuals earning less than $450,000 and couples making less than $550,000. This is a significant concession for a party that has staunchly opposed hiking taxes on anyone at any time for any reason.

Democrats countered with a lower income threshold for tax increases, $360,000 for individuals and $450,000 for couples—that represents movement from the $250,000 level for which President Obama relentlessly campaigned.

It doesn’t take rocket science to conclude that a compromise around $500,000 is in the offing. And the Democrats would get an extension of unemployment insurance as well. But there are still sticking points, including scheduled increases in the estate tax.

Even if Biden and McConnell hammer out a deal, time is running out. The Senate would have to pass the compromise quickly, and any senator can hold up the bill for extended debate. Then Boehner would have to bring the measure to the House floor before midnight, with ample Democratic votes needed to make up for what will certainly be a major wave of Republican defections.

The eleventh-hour flurry followed a largely pessimistic day on Sunday. It was clear from the somber tone of Reid and McConnell during an afternoon session in the Senate that Washington was still stumbling toward the fiscal cliff.

It was clear by mid-afternoon Sunday, from the somber tone of Harry Reid and Mitch McConnell, that Washington was still stumbling toward the precipice of the fiscal cliff.

McConnell, the Republican leader, said on a nearly deserted Senate floor that “I need a dance partner.” But Majority Leader Reid had no fancy footwork to display on Sunday, telling McConnell he had no counter-offer to make, and with no Senate vote and a deadline at midnight Monday, the country tiptoed that much closer to the cliff.

A congressional official involved in the process said McConnell’s team handed an offer to the Democrats around 3 p.m. Saturday, got a counter-proposal, and then submitted a modified offer at 7:10 p.m. A Republican move on Social Security was the key sticking point.

At that point, Senate Democrats sent word that they would break for the night. They did not respond the next morning.

Once the Democratic side rejected the GOP plan early Sunday afternoon, this official said, McConnell called Vice President Joe Biden, who has not been involved in this round, to try to get the talks back on track. “You need to get involved in this,” McConnell told the vice president.

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In short, it was just another day of grinding partisan gridlock in the nation’s capital, which could lead to a New Year’s gift of higher taxes and deep spending cuts for all.

The latest impasse came after President Obama made a rare Sunday talk show appearance, repeating his talking points without offering the Republicans a new proposal. “It’s been very hard for Speaker Boehner and Republican Leader McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package,” he told David Gregory on Meet the Press.

Keep in mind that in the nearly two months since Obama’s reelection, the two sides have already blown their chance to cut a major long-term deal that would extend the Bush tax cuts for most Americans and head off more than $100 billion in spending cuts next year in domestic programs and defense. The president, who has the upper hand, especially in the opinion polls, has not served up a specific menu of spending cuts.

The scramble over the past week, since House Speaker John Boehner couldn’t even muster enough GOP support to bring an alternative plan to the House floor, has involved a shriveled mini-deal that kicks the proverbial can down the road.

The shrunken agreement would essentially stop the tax hikes below a certain income level—either $250,000, the president’s original proposal, or $400,000, his compromise offer in the negotiations—and extend unemployment benefits. It would do nothing about the spending cuts that members of Congress once viewed as so unthinkable that they believed lawmakers would be forced to head them off by year’s end.

Now even the scaled-down agreement is proving a herculean task.

As Republicans tried to push the income tax threshold as high as possible, they also stuck to a proposal known by the unlovely named of “chained CPI.” In essence, it would reduce annual cost-of-living increases to Social Security recipients, an approach prompting fierce resistance among the Democrats.

On NBC, though, Obama said he was “willing” to consider the revised inflation formula, even though it is “highly unpopular among Democrats … What I’m not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors,” among others.

But GOP lawmakers agreed late Sunday to take the Social Security formula off the table, a significant concession that could get the talks back on track. Optimism was still in short supply, however.

“I think we’re going over the cliff,” Sen. Lindsey Graham (R-SC) tweeted.

With just one day to go, McConnell and Biden—two experienced dealmakers, to be sure—would have to cobble together some kind of compromise, get it through the Senate, and ship it to the House, where Boehner may have to swallow it without amendments as the midnight deadline looms.

If this looks from the outside like disarray, well, it is.

As Jonathan Karl asked two senators on ABC’s This Week, “Aren’t you a little embarrassed as leaders in the Congress that it has gotten to this point?” Democratic Sen. Chuck Schumer admitted he was but blamed “hard-right people” in the House.

What happened on Sunday was little more than blame-game politics. Boehner responded to the Meet the Press appearance by saying “Americans elected President Obama to lead, not cast blame” and accusing him of an “unwillingness to agree to anything that would require him to stand up to his own party.”

So here are your cliff notes for the final day of brinksmanship:

—Both sides coalesce around a makeshift agreement that blocks tax hikes for Americans making less than $400,000 to $500,000 but defers action on most other major issues. They declare victory, grab party hats, and go drink champagne.

—The process hits a wall, the country slides off the cliff, and Congress has to come back and deal with the whole mess in January.

—The two sides are close enough to a deal that they agree to stop the clock, for a week or two, to allow them to do the small-ball deal in early 2013 without technically slipping over the cliff.

And regardless of which scenario plays out, the two parties are heading for a February showdown over raising the debt ceiling, rattling the markets—again—by raising the specter of a government default.

It would all seem rather dramatic if this self-imposed crisis wasn’t so pathetic.