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The Edge of the Fiscal Cliff…Where We Stand Today

As the long pre-election Congressional recess comes to an end, Congress is faced with the task of determining the fate of many legislative fiscal measures to prevent the “Fiscal Cliff”, which is reference to a variety of pending tax extender legislation. It is, by far, the primary issue that Congress and the President plan to address before the end of the year. Our DC insiders provided the following list of legislation items that they believe are “at risk”:

  • The “AMT patch” for 2012 that would keep thirty million middle class households from being subject to the alternative minimum tax 
  • Numerous extenders for tax credit programs that expired at the end of 2011 (Work Opportunity Tax Credit-WOTC, Indian Employment Credit, Federal Empowerment Zones, etc.) and others that will expire at the end of this year 
  • Current individual tax rates which will otherwise revert back to where they were at the end of the Clinton Administration (highest individual rate of 39.6% rather than the current 35%) 
  • The ‘doc-fix’ that would prevent a 30% cut in Medicare physician reimbursement rates 
  • Return to the Clinton-era estate tax rates and exemptions 
  • Extension of the current payroll tax reduction 
  • Implementation of a number of new taxes under the Affordable Care Act 
  • $110 Billion in across the board budget cuts mandated by the spending sequester that was agreed to by the President and Congress in 2011  

Senior Congressional staff on both sides of the aisle report that while there have been few bipartisan discussions and little contact between the House and Senate, there has been a good deal of internal discussion within key offices. These discussions have resulted in the development of possible scenarios for addressing the “fiscal cliff” based on the possible political circumstances that will exist when Congress returns to session on November 13.  

The Senate Finance Committee adopted a tax extender bill just before the August Congressional recess and the prevailing expectation is that Senate Leaders will bring this bill to negotiations with the Administration and the House as their position on extenders during the Lame Duck session. It appears unlikely that the Senate will take the extenders bill up separately on the floor; there will simply not be enough time for an extended floor debate on it during the short post-election session.  

House Leaders are considering how to produce their own extender package for these negotiations and the Ways and Means Committee staff is reviewing the extenders in order to make their recommendations to Chairman Camp (R-Michigan) when Congress returns in November. It is possible that the Committee will follow regular order and hold a mark-up of the extenders, but no decisions have as yet been made in that regard. It is also possible that House Republican Leaders will produce a smaller extender bill than what the Senate Finance Committee produced, given pressures from their Members to cut the package back and reduce costs; however, there are few clues as yet as to what provisions might be dropped.  

Although there was little movement on the extenders until the Senate Finance Committee acted in August on their bill, it appears increasingly likely that extenders will be part of any year end deal that is reached. House Leaders have indicated that some energy extenders could be at risk but that WOTC will be included. 

Once the election results are clear, Congressional Leaders will know which of the scenarios now being developed are viable. The assumption is that if the President is re-elected, the Lame Duck activity may be more robust, because the same team will be in the White House, both in the Lame Duck and in the next few years when reforms will be considered.  Scenarios that are based on a possible Romney victory tend to suggest a smaller deal on the possible conclusion that in these circumstances, the President might be reluctant to agree to a debt ceiling increase, leaving that complex negotiation to his successor.  

While the agenda for the Lame Duck session may be slightly affected by the election results, the good news is that a great deal of work is being done by key Congressional staff to prepare the Members to negotiate a deal once the political circumstances are settled.

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