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The Fiscal Debate

The New York Times is following negotiations over the nation’s fiscal path.

The Fiscal Debate in Washington

Latest Developments

With the resolution of the year-end fiscal crisis barely over, the next political confrontation is already taking shape as Washington braces for a fight in February over raising the nation’s borrowing limit. It is a debate President Obama says he will have nothing more to do with. Read more

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  • Jan 3, 2013

    Mary Williams Walsh

    Two of the major credit ratings services have given mixed reviews to the fiscal package that Congress devised this week to avert a fiscal crisis, and said the agreement would not change their negative outlook for America’s sovereign debt.

    Moody’s Investors Service said on Wednesday that the package did not “provide a basis for a meaningful improvement in the government’s debt ratios,” one of the main things Moody’s analysts need to see for their outlook on the United States’ debt to improve. The debt ratios would not change appreciably because the fresh revenue to be gained from the higher tax rate on wealthy households would be eclipsed by the revenue forgone by keeping the current tax rates in place for everyone else, Moody’s said in a brief report.

    Moody’s and Standard & Poor’s both said on Wednesday that the new fiscal package had bought Congress about two months’ time before it would have to enact big cuts in federal spending — as much as $1.2 trillion worth over 10 years. The two-month delay means the next round of high-pressure Congressional negotiations is likely to coincide with the next deadline to raise the federal debt ceiling, which will come in late February or early March.

    “Although Moody’s believes that the debt limit will eventually be raised, and that the risk of default on Treasury bonds is extremely low, this confluence of events adds uncertainty to the outcome,” Steven A. Hess, a member of Moody’s sovereign risk group, wrote in the report. “The debt trajectory resulting from this process is likely to determine whether the AAA rating is returned to a stable outlook or downgraded.”

    Standard & Poor’s said the agreement might bolster “the still-fragile U.S. economic rebound,” but “does little to place the U.S.’s medium-term public finances on a more sustainable footing.” It also said the continuing uncertainty put the creditworthiness of America’s states and cities under “a fiscal cloud,” because many states rely on capital gains taxes, and the fighting in Washington could roil the stock market. Moody’s said that the deal helped America dodge a recession for the time being, but that the increase in the Social Security payroll tax, along with additional spending cuts expected in the coming months, were likely to dampen economic growth.

    The third major ratings agency, Fitch, did not issue a statement in response to the fiscal agreement, but a spokesman said the observations Fitch had made in December still applied. Fitch said in a report on Dec. 19 that it expected Congress to find a way to pull back from the “fiscal cliff,” but that it would not be “a credible plan to reduce the federal budget deficit and stabilize government debt over the medium term.”

    The three agencies already have a negative outlook on the United States’ sovereign debt, suggesting that a downgrade is possible at some point. Standard & Poor’s is the only agency ever to downgrade the United States Treasury’s credit, which it did in August 2011 by one notch to AA-plus, when Congress nearly failed to increase the government’s borrowing authority in time to avert a cash crunch. Moody’s and Fitch kept their ratings at the highest possible, Triple-A.

    The three agencies said that while they were looking at quantitative ratios, like the relationship between the federal debt and gross domestic product, they were also considering federal policy makers’ ability to negotiate productively despite their fundamental differences.

    Fitch said it was watching for a credible deficit reduction plan, with “specific measures and targets” and “a significant down payment in 2013.”

    Standard & Poor’s noted that Republicans in Congress “have indicated they will demand more spending cuts, while the White House has hinted at a harder line than it took in 2011, when political brinkmanship nudged the country toward default on its debt.” Brinkmanship and the brush with default were what prompted the agency’s unprecedented downgrade in 2011.

    A credit downgrade normally makes it more expensive for an institution to borrow, but that did not happen after Standard & Poor’s action. Global investors have kept on flocking to Treasuries, and the federal government’s borrowing rate is now around 1.8 percent, compared with a rate above 2.5 percent around the time of the downgrade.

  • Jan 2, 2013

    Binyamin Appelbaum

    Another debt ceiling deal will have to go through the House Republican leaders Eric Cantor, left, and John A. Boehner. T.J. Kirkpatrick for The New York TimesAnother debt ceiling deal will have to go through the House Republican leaders Eric Cantor, left, and John A. Boehner.

    Even as President Obama prepares to sign the hard-won tax deal that Congress passed Tuesday, another manufactured deadline with a colorful name is threatening to hamstring the government and undermine the economy.

    Goodbye, fiscal cliff. Hello, debt ceiling.

    The federal government has exhausted its legal authority to borrow money, and in about two months it will no longer have enough cash to meet all of its obligations, the Treasury Department said Monday.

    Congress could vote to let the government borrow more, as it has done 11 times since 2001, most recently in August 2011. But some Congressional Republicans say they are willing to do so only as part of an agreement to reduce federal spending, while Mr. Obama said Tuesday that he would not accept any conditions, even as he warned of disastrous consequences.Read More     

    “We can’t not pay bills that we’ve already incurred,” Mr. Obama said. “If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic — far worse than the impact of a fiscal cliff.”

    While it remains difficult to imagine that the federal government would default on its obligations, doubts may grow as the deadline approaches, and the cost of that uncertainty could be significant. The belief that lending money to the United States government is virtually risk-free is a basic tenet of the global financial system. The risks of other investments are measured by comparison, and priced accordingly.

    Doubts also could cost the government directly. The scale of federal borrowing means that even small increases in the interest rates that the government pays to investors add billions to the federal debt. The slightly higher rates on debt issued during the last debt ceiling standoff, in 2011, will cost taxpayers about $18.9 billion in additional interest payments, according to the Bipartisan Policy Center.

    “Last-minute agreements to raise the debt ceiling undermine confidence in the sovereign’s willingness to pay,” Fitch Ratings, which evaluates risks for bond investors, said in a report last month. It added that it still saw little chance of defaulting, describing the very idea as “incredible.”

    The debt ceiling was created, ironically enough, to make it easier for the government to borrow. The Treasury once required Congressional approval each time it issued debt. The ceiling, which evolved from an initial version created in 1917 to facilitate the government’s wartime borrowing binge, replaced those individual authorizations with an upper limit, like the limit on a credit card.

    There is an important difference, however: This credit card can be used only for spending that Congress has separately authorized.

    That might seem to obviate the need for a limit, or at least create a ready justification for the necessary increases. Instead, over the last century, Congress has repeatedly authorized more spending than borrowing, creating a long-running series of crises that have grown more frequent in recent years.

    The ceiling is now set at roughly $16.4 trillion and, as of Monday, that is the amount of the federal debt, too. The government has enough money to pay its debts until “mid-February or early March,” the Congressional Budget Office estimated in November. The government needs to borrow about $100 billion a month, and the Treasury estimated last week that it could use bookkeeping tricks to borrow about $200 billion more without increasing the total amount of its debts.

    These “extraordinary measures” mostly involve government pension funds that invest their holdings in special federal debt to earn interest. The money that the Treasury borrows from the funds, however, cannot be used to pay other bills. So over the next two months, as about $175 billion in debt held by those funds comes due, the Treasury will repay the money it borrowed and then borrow the same amounts from external investors to pay its bills. Once the debt ceiling is raised, the Treasury will then compensate the pension funds for the lost interest.

    The tax deal that passed Congress on Tuesday also cuts into the time remaining to deal with the debt ceiling because it reduces revenues while postponing spending cuts.

    Falling off the cliff, for all of its downsides, could have delayed hitting the ceiling.

  • Jan 2, 2013

    NATE SILVER

    I've been on vacation for the past week and have been following the fiscal negotiations with less attention than I normally would. But perhaps that distance gives me a different perspective on the deal.

    Most of the observations that I was reading about the deal were highly concerned with tactical considerations: Who had moved most from their previous offers? What precedents were being established for future negotiations?

    As news about the negotiations evolved on a daily (or hourly) basis, the attitude of liberals and conservatives in my Twitter feed seemed to change along with it. Liberals seemed considerably happier about the deal on Tuesday night, for example - after the House of Representatives nearly scuttled the deal and then passed it with mostly Democratic votes - than they were early Tuesday morning, after the deal had passed through the Senate with an overwhelming bipartisan majority. But there had been no change to the policy terms of the deal.

    I do not mean to suggest that these tactical considerations are of no importance. It could matter that the House of Representatives violated the Hastert rule -- the idea that that a bill should receive a majority of votes from members of the majority party in the House - in passing the bill. It could matter that President Obama, at an earlier point in the negotiation, capitulated on his demand that the federal debt ceiling be raised as part of a deal, setting up another confrontation in a few months.

    But I would argue that the attention paid to these tactical considerations is a bit disproportionate. They seem to make it easy to declare "winners" and "losers" at every turn in the negotiations - whereas evaluating the deal in terms of the actual policy impact is much trickier.

    Why is this so? Because each side has a variety of plausible strategic imperatives when it comes to fiscal policy - and they don't necessarily yield the same policy preferences.

    Take the deal from the Democratic or liberal perspective, for example. What were Democrats' major strategic goals? For some liberals, the goal might be redistribution: to adopt a series of policies that result in a net transfer of wealth from high-income earners to middle- or low-income earners.

    Other Democrats (and Republicans) might view the deal from the standpoint of taxes vs. spending: what is the ratio of tax increases to spending cuts?

    Finally, there is the paradigm of expansionary or contractionary fiscal policy. Since the economic recovery is still tepid, many liberals would prefer that the government continue to stimulate the economy in the near-term at the expense of increasing the debt in the long term. (This consideration may have a political component as well, since a better economy will tend to improve President Obama's popularity and perhaps increase his ability to achieve future fiscal and nonfiscal policy goals in the months and years ahead.)

    Take one component of the deal: that the cuts to the payroll tax, which had been in place for the past several years were not extended and will now expire. If increasing tax revenues is the major Democratic goal, the expiration of the payroll tax cut helped to achieve that. But it also represented contractionary fiscal policy. And the impact will mostly be realized upon the middle class and the working poor, which pay a higher percentage of their income in payroll taxes.

    Most Democrats, I assume, would have preferred that the payroll tax cut had been extended: doing so would have achieved two Democratic goals (expansionary policy and redistribution), outweighing the one that it contradicted (increasing tax revenues).

    But when the overall deal is considered - not just the payroll tax, but all the other components, like the extension of unemployment benefits, or the increase in income and capital gains taxes for high-income earners - it becomes much trickier to evaluate because of the different criteria that might be reasonably be applied to evaluate success or failure.

    My objective here is not to advocate for any one set of metrics, or to "score" the deal that was struck on Tuesday - so much as to suggest that liberals and conservatives might do well to spend more time considering what their strategic objectives really are. Just as is the case during election campaign, an obsessive focus on the latest developments in the news cycle can cause one to lose sight of the bigger picture.

  • Jan 2, 2013

    David Jolly and Bettina Wassener

    Global stocks kicked off the 2013 trading year with a strong start Wednesday, as investors welcomed a deal between President Obama and congressional Republicans that ended, at least temporarily, an impasse over fiscal policy that had threatened chaos in the new year.

    The broad-based Standard & Poor’s 500-stock index leaped 2.1 percent at the start of trading. The Dow Jones industrial average jumped 1.8 percent, or about 236 points, and the Nasdaq composite index climbed 2.7 percent.

    The deadline drama over the so-called fiscal cliff ended when a sufficient number of Republicans in the House of Representatives joined Democrats to back a deal the Senate had reached earlier, modestly raising income taxes on the highest-earning Americans, ending payroll tax cuts, and creating permanent tax cuts for others.

    “There’s clearly a big relief rally,” said Christian Schulz, an economist in London with Berenberg Bank. Read more

  • Jan 2, 2013

    Peter Baker

    President Obama wasted little time after the House vote on the fiscal deal before hailing the result, laying down a marker for the next confrontation over spending — and then bolting town for a few more days of rest on the beach in Hawaii.

    Mr. Obama strode into the White House briefing room shortly after the vote and lamented that the deal did not address the broader issues involving spending and debt but said “we are continuing to chip away this problem step by step” and called on Republicans to agree on a balanced mix of further tax revenues and spending cuts.”

    “The one thing that I think hopefully the new year will focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship and not scare the heck out of folks quite as much,” he said.

    But Mr. Obama warned Republicans against trying to use an upcoming vote on raising the debt ceiling to extract spending concessions.

    “While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they’ve already racked up through the laws they have passed,” he said. “Let me repeat we can’t not pay bills that we’ve already incurred.”

    Mr. Obama took no questions and after eight minutes left the briefing room. Just minutes after that, Marine One had landed on the South Lawn and the president was spotted heading for the helicopter to fly to Joint Base Andrews, where he boarded Air Force One for an overnight flight to Hawaii to resume a vacation interrupted by fiscal talks.

    Air Force One rolled down the runway at one minute past midnight and Mr. Obama will arrive in Honolulu in the early morning Wednesday to rejoin Michelle Obama and their two daughters, who stayed behind when he returned to the capital after Christmas.

    The bill he spent so much time negotiating will have to catch up with him; it will have to be enrolled by congressional officials before being sent to him for his signature, and presumably flown to Hawaii. While Mr. Obama once had a congressional bill signed by auto pen while he was in Europe, that was the first time that had ever happened and is a practice generally avoided by the White House.

  • Jan 1, 2013

    Peter Baker

  • Jan 1, 2013

    The New York Times

    The House late Tuesday passed and sent to President Obama legislation to avert tax increases on most Americans and prevent large cuts in spending for the Pentagon and other government programs. The measure, brought to the House floor less than 24 hours after its passage in the Senate, passed 257 to 167, with 85 Republicans joining 172 Democrats in voting to allow incomes taxes to rise for the first time in two decades. The bill is expected to be signed quickly by Mr. Obama.

    See how members of the House Voted

  • Jan 1, 2013

    Jonathan Weisman

  • Jan 1, 2013

    John Harwood

  • Jan 1, 2013

    Binyamin Appelbaum and Catherine Rampell

    Only the most affluent American households would pay higher income taxes this year under the terms of a deal that passed the Senate early Tuesday morning, but most households would face higher payroll taxes because the deal does not extend a two-year-old tax break.

    The legislation, which still must overcome resistance exhibited on Tuesday by House Republicans, would grant most Americans an instant reversal of the income tax increases that took effect with the arrival of the new year. Only about 0.7 percent of households would be subject to an income tax increase this year, according to the Tax Policy Center, a nonpartisan research group in Washington. The increases would apply almost exclusively to households making at least half a million dollars, the center estimated in an analysis published Tuesday.

    But the Senate’s decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households would pay a larger share of income to the federal government this year, according to the center’s analysis.

    The tax this year would increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700. Read more

  • Jan 1, 2013

    Binyamin Appelbaum

  • Jan 1, 2013

    Binyamin Appelbaum

  • Jan 1, 2013

    Annie Lowrey

  • Jan 1, 2013

    Peter Baker

  • Jan 1, 2013

    Robert Pear

    11:26 p.m. | Updated: The fiscal deal approved on Tuesday put off the question of broad spending cuts, but it included an array of provisions added at the behest of members of one party or the other to pick up votes or generate savings.

    One such sweetener repeals a long-term-care insurance program that had been championed by Senator Edward M. Kennedy. Other provisions would help companies that produce biofuels with algae; cut Medicare payments to hospitals and radiologists; protect tax breaks for motor sports complexes and certain film and television productions; and cancel a scheduled pay raise for members of Congress.

    The bill, the American Taxpayer Relief Act, also freezes Medicare payments to doctors, which otherwise would have been cut by at least 26.5 percent in 2013.

    The Congressional Budget Office said the freeze would cost $25 billion over 10 years, with most of that coming in 2013-14.Read More     

    Congress offset the cost with changes in Medicare and other federal health programs. For example, it reduced Medicare payments to hospitals by $10.5 billion over 10 years after finding that many hospitals had increased their Medicare revenue by describing the severity of patients’ illnesses in more detail.

    Charles N. Kahn III, president of the Federation of American Hospitals, which represents investor-owned companies, objected to the cut.

    “We understand the necessity for Congressional action to avoid a dive off the fiscal cliff,” Mr. Kahn said. “But we are disappointed that scarce hospital finances would be used to offset the Medicare physician payment fix.”

    The tax and spending legislation steers clear of the most contentious proposals for Medicare savings, which would, for example, have increased the age of eligibility for the program. The bill does squeeze savings from health care providers. It cuts Medicare payments for nonemergency ambulance transportation of kidney dialysis patients, gives the government more time to recover overpayments and trims payments to health maintenance organizations serving Medicare beneficiaries.

    Under the long-term care insurance program, cherished by some Democrats, workers would have paid monthly premiums during their careers and could have received cash benefits if they became disabled later in life. The program was part of President Obama’s health care law.

    Obama administration officials suspended the program in October 2011, saying they could not find a way to make it financially sustainable. Many Democrats wanted to keep it on the books, in the hope that it could be revived someday. But Republicans wanted to repeal it, and they got their way.

    The Senate Republican leader, Mitch McConnell of Kentucky, who was an architect of this week’s budget deal, had criticized the long-term care program, known as Community Living Assistance Services and Supports, or Class, saying it was “destined to fail in the real world.”

    Senator John Thune of South Dakota, chairman of the Senate Republican Conference, who led opposition to the long-term care insurance program, welcomed the prospect of its repeal. He said the administration had “ignored repeated warnings about the financial solvency of this massive new entitlement.”

    However, a separate section of the fiscal legislation establishes a commission to study the need for long-term care and recommend legislation in about six months.

    The 15-member panel is supposed to examine demographic trends, as well as the potential for new technologies to improve “long-term services and supports.”

    The legislation also reduces Medicare payments for physical therapy and other therapy services when they are provided more than once on the same day to the same patient.

    In addition, the bill would reduce Medicare payments for one particular radiology service when performed in hospital outpatient departments. Lawmakers specified the service in detail: “stereotactic radiosurgery, complete course of treatment of cranial lesion(s) consisting of one session that is multi-source Cobalt 60 based.” The cutback is expected to save $400 million over 10 years.

    In the future, lawmakers said, they may also cut payments to hospital clinics for services that can be done at lower cost in doctors’ offices.

    The bill would save $4 billion in 2022 by extending cuts in Medicaid payments to states for hospitals that serve large numbers of low-income people. Republicans had sought bigger savings in Medicare and Medicaid and said they would continue their efforts to rein in the growth of the health care programs, which together account for nearly one-fourth of federal spending.

    “What I’ve seen does not include significant spending cuts,” said Representative Phil Gingrey, Republican of Georgia.

    Democrats said they would resist any changes that reduced benefits or access to care for Medicare or Medicaid beneficiaries.

  • Jan 1, 2013

    Peter Baker

  • Jan 1, 2013

    Ron Nixon

    The last-minute tax package passed by Senate early Tuesday morning included a nine-month farm bill extension that will prevent an increase in milk prices that was due to hit at the beginning of the year, but the proposal fell short of changes sought by dairy farmers and lawmakers on the agriculture committees who were hoping for a new five-year bill to be included in the legislation.

    The most recent farm bill, passed in 2008, expired on Sept. 30. If a new bill is not passed or the current one extended, farm programs would lose billions of dollars in financing and would revert to a 1949 agriculture law. The old law would reintroduce higher government price supports for milk, corn, rice, wheat and other crops and could lead to higher consumer prices and federal spending. Milk prices could jump to as much as $6 to $8 a gallon if farm programs are allowed to expire. Milk now costs an average of $3.65 a gallon.

    The Senate passed a farm bill over the summer, but the House failed to bring up its version for a vote after Republicans split over the size of the cuts to nutrition programs. The bills would have cut between $24 and $35 billion from agriculture programs.Read More     

    Members of the House and Senate agriculture committees had worked on getting the White House and Congressional leaders to include the bills in deficit talks, touting the savings as a way to get a new five-year farm bill passed. But the Senate instead chose to include a proposal by Senator Mitch McConnell, Republican of Kentucky and the minority leader.

    The proposal by Mr. McConnell would extend only portions of the current farm bill. The extension would have no disaster assistance, something farmers had sought after suffering through the worst drought in 50 years in 2012. The proposal would also eliminate conservation programs and financing for fruit vegetable growers and organic farmers. The proposal does contain provisions to prevent milk prices from increasing. But it would not include a program that pays milk producers when feed prices increase.

    Mr. McConnell’s proposal would leave in place direct payments to farmers, which total about $5 billion a year. The payments go to farmers or farmland owners whether or not they grow crops and have long been a target of liberals and conservatives as an example of wasteful government spending.

    Senator Debbie Stabenow, Democrat of Michigan and chairwoman of the Senate Agriculture Committee, called the extension incomplete and criticized it for continuing the direct payments that were eliminated in the Senate farm bill.

    “Rather than embrace the Senate’s bipartisan farm bill, which cuts $24 billion in spending and creates certainty for our agriculture economy, Senator McConnell insisted on a partial extension that reforms nothing, provides no deficit reductions, and hurts many areas of our agriculture economy,” said Ms. Stabenow.

    Dairy producers also expressed their disappointment in the extension.

    “These stopgap measures don’t even qualify as kicking the can down the road,” said Jerry Kozak, president of National Milk Producers Federation. “It’s little more than a New Year’s Day, hair-of-the-dog stab at temporarily putting of decision that should haven been made in 2012 about how to move farm policy forward, not offer more of the same.”

    The House is expect to pass a similar farm bill extension Tuesday afternoon when it votes on legislation to stave off billions in tax increases and cuts in government spending.

  • Jan 1, 2013

    Jonathan Weisman

  • Dec 31, 2012

    Peter Baker

  • Dec 31, 2012

    John Harwood

  • Dec 31, 2012

    Jonathan Weisman

  • Dec 31, 2012

    Peter Baker

  • Dec 31, 2012

    Robert Pear

    House Speaker John Boehner of Ohio arrived on Capitol Hill in Washington, on Tuesday. Mary Calvert/Reuters House Speaker John Boehner of Ohio arrived on Capitol Hill in Washington, on Tuesday.

    House members of both parties expressed little enthusiasm for a tentative deal to stave off large tax increases as they learned elements of the agreement taking shape on Tuesday.

    “What I’ve seen does not include significant spending cuts,” said Representative Phil Gingrey, Republican of Georgia.

    Representative Michael C. Burgess, Republican of Texas, expressed dismay at the likely delay in automatic spending cuts, with no assurance of other savings to offset the cost. “It’s preposterous to delay the sequester,” Mr. Burgess said, referring to the cuts.

    Mr. Burgess said the leadership of the House Republican caucus had told members to “stay close and stay sober” on New Year’s Eve, in case they needed to return to the Capitol on short notice.

    Representative Earl Blumenauer, Democrat of Oregon, said the emerging agreement was vexing because it put off major decisions until a time when Democrats might have less leverage.

    “We¹ll be in a squirrel cage,” confronting similar issues in a few months, Mr. Blumenauer predicted. “Democrats have all the leverage now” and will probably have less in a few months, when Congress debates an increase in the federal debt limit, he said. “This reinforces all the worst political behavior around here.”

  • Dec 31, 2012

    Carl Hulse

  • Dec 31, 2012

    Jonathan Weisman

  • Dec 31, 2012

    Peter Baker

    Another year, another fourth-quarter summons from the fiscal bench for Vice President Joseph R. Biden Jr.

    The late entry of Mr. Biden to the tax-and-spending talks that have consumed the capital over the last two months recalls his role in the debt crisis of 2011 and once again seems to have been critical toward cutting through the deadlock.

    Mr. Biden was handed the ball not by President Obama but by Senator Mitch McConnell of Kentucky, the Republican minority leader, who called the vice president after growing frustrated by negotiations with the Democratic majority leader, Senator Harry Reid of Nevada. Mr. McConnell and Mr. Biden have had good relations going back to their years together in the Senate.Read More     

    As soon as the talks boiled down to Mr. Biden and Mr. McConnell, it became a relatively short path to a tentative agreement on taxes. The two talked late into the night on Sunday, with their last call coming around 12:45 a.m. Mr. Biden remained at the White House along with Mr. Obama until 2 a.m. before returning to the vice presidential residence for a little sleep.

    Mr. Biden and Mr. McConnell were back on the phone at 6:30 a.m. on Monday, and by the afternoon Mr. Obama and Mr. McConnell were both reporting a near-deal. The vice president and the senator agreed on a compromise raising tax rates on income over $400,000 for individuals and $450,000 for households as well as renewing a variety of tax credits, increasing the estate tax on the wealthy and extending unemployment insurance. But the two still remain in talks about how long to postpone automatic spending cuts due to take effect this week.

    It’s not as if Mr. Biden had not been part of the jockeying over the two months before the call from Mr. McConnell. He has sat in on the meetings and advised the president on what to do. But he was largely a secondary figure as long as the action was centered on the House with Speaker John A. Boehner as the main Republican negotiator. Once Mr. Boehner gave up and handed off the issue to Mr. McConnell in the Senate, the vice president’s long history in the upper chamber put him back on the field.

    Last year, Mr. Obama gave Mr. Biden the task of negotiating with Representative Eric Cantor of Virginia, the House majority leader, for a way out of a confrontation over the nation’s debt ceiling, but they failed to come up with a resolution and Mr. Obama and Mr. Boehner stepped in. After the two of them failed to reach a grand bargain, Mr. Biden and Mr. McConnell came up with an agreement that resolved the issue for the moment but set up the automatic spending cuts that take effect later this week unless the two sides come up with an agreement to stop them.

    The tandem between Mr. Biden and Mr. McConnell comes not from any ideological affinity; the vice president is a liberal Democrat and the senator is a conservative Republican. But Mr. McConnell has a strained relationship at best with the other two main Democratic players, Mr. Obama and Mr. Reid, leaving the vice president as his best “dancing partner.”

    “They have a good relationship,” said a senior White House official who asked not to be named discussing continuing talks. “It’s borne fruit before.”

    Both sides are hoping it does again.

  • Dec 31, 2012

    Jonathan Weisman

    With a deal within reach to stop hundreds of billions of dollars in tax increases from kicking in Tuesday, Senator Mitch McConnell went to the Senate floor Monday to call on Congress to act now on the tax agreement and leave a deal on automatic spending cuts for the coming days.

    “Let’s pass the tax relief portion now,” said Mr. McConnell, the Senate Republican leader. “Let’s take what’s been agreed to and get moving. The president wants this, members of Congress want to protect taxpayers, and we can get it done now.”

    Mr. McConnell was instrumental in all but securing a deal that would head off most of the fiscal punch if Congress could get it passed. When Senate Democrats all but walked away from negotiations, he reached for the phone and called Vice President Joseph R. Biden Jr. to find a new Democratic negotiating partner.Read More     

    “I’m happy to report that the effort has been a successful one and as the president just said, we are very close to an agreement,” Mr. McConnell said.

    But a final deal is being held up by one last question: What to do about $110 billion in automatic spending cuts set to begin Jan. 2. Republicans want them to go into force unless they are replaced by spending cuts elsewhere. Senate Democrats want to put them on “pause” for at least a year. President Obama said he would suspend the cuts with a mix of tax increases and spending cuts elsewhere. And all sides are angry over the impasse.

    Mr. McConnell’s solution will most likely be resisted by Democrats, who will see it as a clear Republican victory with the spending cuts remaining in place, at least temporarily. But many Republicans are just as opposed to those cuts as Democrats because they hit defense programs especially hard. Pressure would continue to mitigate or reverse the damage.

    “Let me be clear,” Mr. McConnell said, “we will continue to work on finding smarter ways to cut spending, but let’s not let that hold up protecting Americans from the tax hike that will take place in about 10 hours. We can do this. We must do this.”

  • Dec 31, 2012

    Jonathan Weisman

    Republicans responded to the president’s statement angrily, accusing him of “moving the goal posts” just when a deal was in reach. They said they knew that the two sides still had to agree on how to suspend automatic, across-the-board spending cuts, but that they generally agreed such a suspension would be offset, at least partially, by spending cuts elsewhere. Instead, the president said any deal to turn off the so-called “sequester” had to be financed by tax increases and spending cuts in concert.

    “He can’t hold the middle class hostage when an agreement is ready simply because he wants to get the sequester done now,” said a senior Republican leadership aide after the speech. “That can be handled over the next month or so.”

  • Dec 31, 2012

    Peter Baker

    President Obama said on Monday that a deal on taxes is “within sight,” though still incomplete, as negotiators scramble to meet a midnight deadline.

    “Today it appears that an agreement to prevent his New Year’s tax hike is within sight,” he said in an appearance with supporters at the White House. “But it’s not done. There are still issues left to resolve, but we’re hopeful that Congress can get it done.”

    Mr. Obama used the occasion to warn Republicans that he will continue to press for more tax increases even beyond whatever may be included in a deal today. “If Republicans think I will finish the job of deficit reduction through spending cuts alone,” he said, then “they’ve got another thing coming. That’s not how it’s going to work.”

    Mr. Obama also said that though he would have preferred a “grand bargain” that provided a comprehensive solution to deficit reduction, but that “with this Congress that was a little too much to hope for at this time.”

  • Dec 31, 2012

    Jim Roberts

  • Dec 31, 2012

    Jonathan Weisman

    Vice President Joseph R. Biden Jr. and Senator Mitch McConnell, the Republican leader, on Monday reached agreement on a tentative deal to stave off large tax increases starting on Tuesday, but remained stuck on whether and how to stop $110 billion in across-the-board spending cuts in 2013, an official familiar with the negotiations said.

    Under the emerging deal, income taxes would rise to 39.6 percent from 35 percent on income over $400,000 for single people and $450,000 for couples. Above those income levels, dividends and capital gains tax rates would also rise, to 20 percent from 15 percent.

    The dislcosure of new details of the deal came as President Obama prepared to make public remarks. Read more

  • Dec 31, 2012

    John Harwood

  • Dec 31, 2012

    Peter Baker

  • Dec 31, 2012

    Jonathan Weisman

    Senator Rand Paul is shown speaking from the floor of the Senate on a monitor in the Senate dining room on Monday in Washington. Stephen Crowley/The New York Times Senator Rand Paul is shown speaking from the floor of the Senate on a monitor in the Senate dining room on Monday in Washington.

    Talks between Vice President Joseph R. Biden Jr. and Senator Mitch McConnell of Kentucky are dipping deep into the weeds, a sign of how far negotiations have come toward a deal.

    Democrats say no deal is final, and in fact are mightily unhappy with some of the provisions, but the details are spilling out from officials close to the talks.

    Under the blueprint, income taxes would rise on incomes over $400,000 for singles and $450,000 for couples, but the affluent would take another hit. Two provisions phasing out the personal exemption and other tax deductions would be reinstated after being eliminated by the Bush tax cuts of 2001. The so-called PEPS and Pease provisions would begin kicking in on incomes over $200,000 for singles and $250,000 for couples.

    The tax rate on capital gains and dividends would also rise, to 20 percent from 15 percent, but that would kick in with the higher income tax rates, at incomes of $400,000 for singles and $450,000 for couples.

  • Dec 31, 2012

    Peter Baker

  • Dec 31, 2012

    Jonathan Weisman

    Senator Max Baucus spoke with reporters on Monday at the Capitol. Susan Walsh/Associated Press Senator Max Baucus spoke with reporters on Monday at the Capitol.

    Senate Democrats are pushing back hard on a deal that Vice President Joseph R. Biden Jr. and Senator Mitch McConnell are closing in on, objecting vociferously to any compromise that suspends automatic across-the-board spending cuts for any time frame short of a year.

    A senior Senate Democratic aide said a one-year “pause” in those cuts — known as sequestration — is nonnegotiable. Mr. McConnell of Kentucky, the Senate Republican leader, has suggested a three-month suspension, according to officials knowledgeable about the negotiations.

    Senator Tom Harkin of Iowa, one of the Democratic Party’s most senior liberals, took to the Senate floor to suggest that he will oppose the deal that is coming together.Read More     

    “As I see this thing developing, as I have said, no deal is better than a bad deal,” Mr. Harkin said, “and this is a very bad deal, the way things are shaping up.”

    Democratic officials stressed that no deal yet exists, but phone calls between Mr. Biden and Mr. McConnell have moved negotiations forward. Talks center on allowing tax rates to rise to 39.6 percent from 35 percent on incomes over $450,000 for married couples, an extension of unemployment insurance and a provision to prevent the alternative minimum tax from expanding into the middle class starting on Tuesday. Negotiators are still apart on a tax regimen for inherited estates, but according to a Democratic aide, Mr. Biden has suggested a 40 percent tax rate on the value of estates over $4 million. That would split the difference between the Democratic demand for a 45 percent rate on estates over $3.5 million and the Republican position of a 35 percent rate on inheritances over $5 million. Mr. Biden has also suggested allowing tax rates to rise on singles earning more than $400,000 a year. On Sunday, Democrats had wanted that threshold set at $360,000.

    Democrats are leery that the vice president will give away too much, when they believe that they hold the upper hand politically. Mr. Biden and the Republican leader spoke past midnight last night and again at 6:30 this morning after a series of conversations that began shortly after noon Sunday, when Mr. McConnell reached out to the vice president to break a stalemate.

    Skeptical Democratic aides said they still feared that the deal would blow up over the issue of sequestration. Republicans on Sunday said any “pause” in the $110 billion in cuts for 2013 should be offset by spending cuts elsewhere. Democrats balked, and continue to balk, even after Mr. McConnell suggested that Republicans could accept a three-month hiatus.

  • Dec 31, 2012

    Annie Lowrey

    On top of everything else, the United States officially hits its debt ceiling today, starting a countdown clock that ends in a cash management crisis in a matter of weeks.

    The debt ceiling is a statutory limit on the amount the country can borrow – currently, it sits at about $16.4 trillion – which Congress periodically needs to raise if the country is spending more than it is taking in in revenue. Right now, of course, it is doing just that: The country is running deficits of about $1 trillion a year.

    Of late, Republicans have refused to raise the ceiling unless Democrats agree to commensurate spending cuts. In 2011, that led to the heated and ultimately fruitless debt negotiations between the White House and the House speaker, John A. Boehner, as well as the passage of the spending cuts in the “fiscal cliff” that Congress is now peering over.

    This time around, Republicans want to extract cuts, likely from entitlement programs like Social Security, in exchange for their help in lifting the ceiling. But Democrats have said that Congress should go back to raising the debt limit as a matter of course, as generally happened up until last year.Read More     

    Specifically, the White House has said that it will not negotiate with Congressional Republicans over the debt ceiling. “We are not going to play that game,” President Obama said at a meeting with the Business Roundtable this month. “If Congress in any way suggests that they’re going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation – which, by the way, we had never done in our history until we did it last year – I will not play that game, because we’ve got to break that habit before it starts.”

    Democratic aides have described a strategy that is more literal than one might think: to simply refuse to discuss the ceiling as any kind of bargaining chip. But Republicans continue to see the debt limit as a potent piece of leverage over the White House. That has set up another major debt confrontation for early in 2013.

    Right now, the Treasury is undertaking “extraordinary measures” to give the government enough breathing room to pay all of its bills. But such measures buy Washington only so much time. In February or March, the Treasury secretary would need to decide which payments to delay or default on.

  • Dec 31, 2012

    Jennifer Steinhauer

  • Dec 31, 2012

    John Harwood

  • Dec 31, 2012

    Jennifer Steinhauer

    If the Senate votes on any legislation to avert a fiscal crisis on Monday, they may have to do it without Senator Jim DeMint of South Carolina.

    The Republican senator, who announced this month that he would retire just two years into his second term to head the Heritage Foundation, has not returned to the Capitol for votes in weeks, and there were no signs that he would be beating a hasty return. No one answers the phone at his office and an e-mail to his spokesman was not immediately returned.

    While several senators returned at their own pace last week, when the Senate reconvened with a hope that a deal to avert the so-called fiscal cliff would be in the offing, most have made it back. Senator Mark Kirk of Illinois is set to return to the Senate on Thursday; Mr. Kirk has been away for a year after having a stroke. Senator Frank R. Lautenberg, Democrat of New Jersey, has also been missing this week as he is recovering from flu, though his office said the senator would return to vote should a deal come to the floor.

    While some of his colleagues may mourn his absence, Democrats no doubt will welcome it as Mr. DeMint is one of a handful of senators who might object to a unanimous consent agreement that must be obtained to get a deal before the 112th Congress’s business is finished.

  • Dec 31, 2012

    Nathaniel Popper

    A television above the floor at the New York Stock Exchange was set to coverage of the fiscal negotiations on Monday. Seth Wenig/Associated Press A television above the floor at the New York Stock Exchange was set to coverage of the fiscal negotiations on Monday.

    Stock markets were slightly higher on Monday morning as politicians continued to struggle to find a solution to the fiscal crisis in Washington.

    The subdued trading surprised some strategists who had expected investors to respond swiftly and negatively to the failure to produce an accord in talks between Senate leaders. If Congress does not arrive at a solution by midnight, a series of tax increases and spending cuts will be phased in.

    The Standard & Poor’s 500-stock index was up 0.3 percent in early trading, and the Dow Jones industrial average was higher by less than a tenth of a percent. The Nasdaq composite index gained 0.6 percent.

    Traders gave divided explanations for the mild response on Monday morning. Read more

  • Dec 31, 2012

    Binyamin Appelbaum

  • Dec 31, 2012

    The New York Times

    If Congress is unable to act before the new year, Washington will effectively usher in a series of automatic tax increases and a program of drastic spending cuts that economists say could pitch the country back into recession. This graph from Sunday’s news report shows what will happen when.

  • Dec 31, 2012

    Jennifer Steinhauer

  • Dec 28, 2012

    The New York Times

    Clockwise, from top left, Senator Charles Schumer arrived in Washington on Thursday afternoon.; a view of the Capitol from Union Station; shredded papers in Senator Joseph I. Lieberman's staff office; employees take a break in the Senate Hart Building. Stephen Crowley/The New York Times Clockwise, from top left, Senator Charles Schumer arrived in Washington on Thursday afternoon.; a view of the Capitol from Union Station; shredded papers in Senator Joseph I. Lieberman’s staff office; employees take a break in the Senate Hart Building.

    On Capitol Hill on Thursday, senators stood united, but “if only around their sadness and frustration at being stuck in Washington in a holiday week, peering over the edge of the fiscal abyss.” Jennifer Steinhauer captured the scene at the Capitol.

  • Dec 27, 2012

    The New York Times

    The deadline for resolving the pending fiscal crisis is less than a week away and, absent a breakthrough, spending cuts and tax increases on every income level will go into effect on Jan. 2. During their negotiations, President Obama and Speaker John A. Boehner have sought to keep tax rates at their current level for some taxpayers while letting them rise for high earners, but they have not agreed on where to set the income threshold. Mr. Obama has called for rates to go up on income above $250,000 (he later increased his offer to $400,000), Congressional Democrats have said they would agree to $500,000, and Mr. Boehner has called for a $1 million threshold. Here is a breakdown of what portion of earners, income and taxes would be affected at three different levels.

  • Dec 27, 2012

    The New York Times

    “Your Money” columnist Ron Lieber discusses the implications of the fiscal deadline on personal finances.

  • Dec 27, 2012

    Carl Hulse

  • Dec 27, 2012

    Jonathan Weisman

  • Dec 27, 2012

    Jonathan Weisman

    The Senate majority leader, Harry Reid, of Nevada, took to the Senate floor on Thursday to say absent an unexpected breakthrough, time has run out on a deal to avert large-scale tax increases and budget cuts in the first days of next year. And in the Senate’s current state of dysfunction, he could be right.

    The Senate, by tradition, has operated on negotiated agreements and unanimous consent to move legislation from one parliamentary stage to another. If just one senator does not sign on to such agreements, work can continue but only at a crawl. Here’s the math.

    Mr. Reid could motion Thursday afternoon to bring up legislation that would extend expiring Bush-era tax cuts on incomes under $250,000, set dividends and capital gains tax rates at 20 percent, ensure the alternative minimum tax does not expand dramatically to hit more of the middle class, extend expiring unemployment insurance and temporarily stop across-the-board cuts to military and domestic programs. Assuming one senator objects to a request to move straight to the bill by unanimous consent, the Senate would then vote at 9 a.m. to cut off debate on that motion to proceed to the bill.

    If that motion got 60 votes Saturday morning, there would then have to be 30 hours of “post-cloture ripening” before the Senate actually votes on the motion to proceed to the bill. That would take the Senate to 1 p.m. Sunday. If again that procedural motion received 60 votes, the Senate would be on the “fiscal cliff” bill itself. Mr. Reid would then immediately file to cut off debate on the bill itself.

    At that point, under Senate rules, the earliest possible vote on final passage would be Tuesday, Jan. 1. By then, the 112th Congress would have disbanded and efforts to pass the bill would have to start all over again — this time on the other side of the “fiscal cliff.”

  • Dec 26, 2012

    Annie Lowrey

    At the end of the year, the United States will hit its statutory borrowing limit, starting a countdown clock that would within a matter of weeks lead to it failing to pay all of its obligations, according to a statement from the Treasury Department.

    On Wednesday, Treasury Secretary Timothy F. Geithner wrote a letter to Congress informing it that the United States would hit its $16.4 trillion borrowing limit on Dec. 31. The Treasury will “shortly” begin undertaking “extraordinary measures” to avoid the limit — essentially moving money from pocket to pocket to give the government enough breathing room to pay all of its bills, from soldiers’ salaries to Social Security payments, after that date. But within weeks — sometime in February or March, analysts estimate — its required payments would overwhelm its receipts, leaving an unprecedented cash shortfall. That would most likely send financial markets into a tailspin and lead to another downgrade of the country’s debt rating.

    This year, the debt ceiling has become a potent political football, complicating negotiations over the scheduled year-end tax increases and spending cuts, the so-called fiscal cliff. The White House wants the debt ceiling to be taken off the table in the negotiations and for Congress to raise it as a matter of course. (Congress controls the country’s level of debt, by virtue of its controlling the government’s power to tax and spend. The debt limit is a secondary check on the total amount of outstanding debt that Congress periodically needs to raise.) But Republicans have threatened not to raise the ceiling if President Obama vetoes a bill extending the Bush-era tax cuts for household income above $250,000 a year, and more generally have indicated that they intend to use it as a bargaining chip.

    The full text of Mr. Geithner’s letter is below:

    December 26, 2012

    The Honorable Harry Reid
    Majority Leader
    United States Senate
    Washington, DC 20510

    Dear Mr. Leader:

    I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.

    These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer.

    Sincerely,

    Timothy F. Geithner

    Identical letter sent to:
    The Honorable John A. Boehner, Speaker of the House
    The Honorable Nancy Pelosi, House Democratic Leader
    The Honorable Mitch McConnell, Senate Republican Leader

    cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
    The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
    The Honorable Max Baucus, Chairman, Senate Committee on Finance
    The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance
    All other Members of the 112th Congress

  • Dec 24, 2012

    The New York Times

    The Times’s Annie Lowrey talks to Maya MacGuineas, the face of the Campaign to Fix the Debt, a nonpartisan phalanx of chief executives, politicians and economic experts lobbying lawmakers to broker a deal.

  • Dec 21, 2012

    Christopher Drew

    In last year’s budget talks, Congress set up the prospect of $500 billion in automatic cuts in military spending to help pressure political leaders to reach a broader deficit-reduction deal.

    The cuts, which would start with $50 billion next year, would be disruptive. But military analysts say they could be phased in more gradually than originally thought, eliminating the need for furloughs or layoffs on Jan. 2.

    As a result, White House officials and House Republicans believe that they can limit the fallout at the Pentagon if they miss that deadline and reach a larger budget deal sometime next year.

    “It’s not like a government shutdown, where things close and the lights go out,” said Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments, a research group in Washington. “It looks more like a glide slope than going down a cliff.”Read More     

    The defense secretary, Leon E. Panetta, who has said that the automatic cuts would be catastrophic, also toned down his remarks in a memorandum to Pentagon employees on Thursday.

    “These cuts, while significant and harmful to our collective mission as an agency, would not necessarily require immediate reductions in spending,” he wrote. But, he added: “Should we have to operate under reduced funding levels for an extended period of time, we may have to consider furloughs or other actions in the future.”

    Under the law that created the process, known as sequestration, uniformed members of the military would be exempt from furloughs or pay reductions, and war spending would be protected.

    But a significant number of the Pentagon’s civilian employees could be furloughed or laid off, as could some of the contractors who build weapons systems and provide services to the military.

    The plan was created to cut spending automatically if the White House and Congress could not agree on how to meet caps on discretionary spending. Mr. Panetta has said sequestration would act like a meat ax, chopping about 10 percent off most Pentagon programs next year. If the plan is not altered, the cuts would add up to $500 billion over 10 years.

    Democrats initially hoped that the threat of the automatic cuts would help prompt more hawkish Republicans to make a deal on deficit reduction. But the level of military spending never became a major topic in the presidential election, and it has been pushed to the side in the latest negotiations.

    The House voted 215 to 209 on Thursday night to cancel the military cuts. The narrow margin in the House, which has 241 Republicans, suggested that “the floor is getting soft under defense spending” in general, said Gordon Adams, who helped oversee military budgets in the Clinton White House.

    Mr. Harrison, the budget center analyst, said that if the automatic cuts were to start on Jan. 2, they would unfold in several stages. The fiscal year started on Oct. 1, so the Pentagon would have three quarters in which to shave about $50 billion from its base budget of more than $525 billion.

    “There would be no immediate layoffs,” he said. And weapons programs that had already been financed would keep going.

    By next spring, the Pentagon would probably have to furlough or lay off civilian employees, and “things could get messy,” he said. It would also have to slow awards of new contracts, and it would have fewer employees to oversee contractors, causing more delays.

    Mr. Harrison said that unless the department could shift money from other uses, it would eventually have to reduce its civilian payroll by nearly 14 percent. Though the Pentagon has said it would try to avoid layoffs, Mr. Harrison said it could only achieve that level of savings through furloughs if nearly every one of its 791,000 civilian employees took a month off without pay.

    Because most weapons programs are financed in advance of the work, he said, the purchases from contractors might decline by only 3.5 percent next year.

    Military analysts said that if a broader deficit-reduction deal is reached, the Pentagon might have to accept from $150 billion to $300 billion in cuts over 10 years instead of the $500 billion under the sequestration law. It also would have more flexibility in apportioning the cuts.

  • Dec 21, 2012

    NATE SILVER

    Markets were down sharply on Friday after Speaker John A. Boehner's tax plan failed to reach a vote in the House on Thursday evening. No Democrats were prepared to support the bill, and Mr. Boehner told reporters that his plan also lacked sufficient votes among Republicans.

    A variety of smart political observers have suggested that the markets are misreading the situation. Instead, they say, the failure of Mr. Boehner's bill makes a deal to avert the so-called fiscal cliff more likely because it has now become clear that any deal will need to rely upon the support of at least some Democrats, which could ease passage through the Democratic-controlled Senate.

    Perhaps this is correct. Mr. Boehner has said that the White House and Senator Harry Reid, the majority leader, will now have to take the lead in negotiations. The chance that a fiscal deal will be secured on terms that Democrats find favorable may have increased.

    But the chance that there will not be a deal at all may also have increased, or at least not one before protracted negotiations that could harm the economy. The difficulty is in finding any winning coalition of votes in the House of Representatives.

    In the diagram below, I've charted the major coalitions in the incoming 113th Congress, which will convene on Jan. 3. The new House of Representatives will have 233 Republicans and 200 Democrats. Two seats remain vacant, which means that 217 of 433 votes will be required to pass a bill.

    Of the 233 Republicans, 51 will be members of the Tea Party Caucus, give or take a few depending on which first-term members of Congress join the coalition. The other 182 are what I will call Establishment Republicans.

    As Keith T. Poole of the Voteview blog points out, the Tea Party Caucus wasn't solely responsible for Mr. Boehner's failure to pass his bill. A significant number of Tea Party Caucus members were thought to support his plan, while some of the opposition came from representatives who do not formally associate themselves with the Tea Party.

    Nonetheless, it seems clear that Mr. Boehner lacks the confidence of roughly three dozen Republican members of the House, and possibly more. Erick Erickson, of the blog RedState, identified 34 Republicans whom he said opposed Mr. Boehner's bill and another 12 whom he identified as being on the fence.

    Say that Mr. Boehner cannot count on the support of 34 of his Republicans when it comes to passing major fiscal policy legislation. That means he would need to identify 18 Democrats who would vote along with the Republicans who remained with him.

    Here's the problem: it might be hard to round up those 18 Democrats.

    The reason is that most of the Democrats who remain in the House are quite liberal.

    In fact, the once-powerful Blue Dog Caucus, a coalition of moderate Democrats, will have only 14 members in the new Congress. The centrist Democrats who once filled its ranks fared very poorly in the 2010 midterm elections, while others retired or were harmed by redistricting or by primary battles. Although Republicans have moved more to the right than Democrats have moved to the left in recent years, according to measures like those developed by Mr. Poole, the attrition in the Democratic Party has nevertheless contributed to moving the two parties even further apart.

    What that means is that if Mr. Boehner has a significant number of Republican defections, as he did on Thursday night, he will need to win the support of at least some liberal Democrats. And a bill that wins the support of some liberal Democrats will be an even harder sell to Mr. Boehner's Republicans. For each vote that he picks up from the left, he could risk losing another from his right flank.

    Perhaps cooler heads will prevail in these negotiations. But a majority of the incoming House - 237 of 433 members - will be either Tea Party Republicans or liberal Democrats, leaving only 196 members who are either Establishment Republicans or Blue Dog Democrats and who might form a functional center-right coalition.

    Moreover, the House is likely to engage in repeated battles over fiscal policy during the next two years: not just the over the fiscal cliff, but also over the debt ceiling, annual budgeting plans and whatever stabilization measures might be proposed in the event of another economic downturn.

    If Mr. Boehner is having as much trouble whipping votes as he did on Thursday night, reducing the pool from which he might be able to draw together a compromise, this arithmetic problem could turn out to be intractable at some point.

  • Dec 21, 2012

    John H. Cushman Jr. and Jonathan Weisman

    President Obama urged Congress on Friday to make another attempt after Christmas to pass a scaled-back plan before the end of the year to head off broad tax increases and spending cuts that would otherwise occur.

    After meeting with Senator Harry Reid of Nevada, the majority leader, and talking on the phone to House Speaker John A. Boehner, the president said he was hoping for a formula that would gain enough support from both Democrats and Republicans to allow passage by bipartisan majorities in both the House and the Senate.

    “We move forward together, or we don’t move forward at all,” he said.

    He said such a plan, among other things, would avoid raising taxes on the middle class and extend unemployment insurance payments.Read More     

    Mr. Obama stressed that he remained “ready and willing to get a comprehensive package done,” whether in a grand compromise or a series of steps.

    But the limited, stopgap approach, he said, is “an achievable goal that can get done in 10 days.”

    The House and the Senate are not expected to resume business until after Christmas.

    In the meantime, Mr. Obama said, “Everybody can cool off, everybody can drink some eggnog, have some Christmas cookies, sing some Christmas carols and enjoy the company of loved ones.”

    He acknowledged that there would have to be compromises in order to draw enough support from both parties.

    “Nobody can get 100 percent of what they want,” Mr. Obama said. “And this is not simply a contest between parties in terms of who looks good and who doesn’t. There are real-world consequences to what we do here.”

    Describing the halting progress of the past few weeks, Mr. Obama said that “I met them halfway on taxes and I met them more than halfway on spending.”

    As he has done all along, he said that his primary aim was to avoid tax increases on lower and middle tax brackets — but that the wealthy would be asked to pay more.

    The scaled-back plan the president is proposing would extend expiring Bush-era tax rates on incomes below $250,000, with a measure to temporarily suspend automatic, across-the-board spending cuts and an extension of unemployment insurance benefits, Democratic officials said Friday.

    The bill would be similar to legislation already passed by the Senate, but the added measures delaying so-called “sequestration” and helping the unemployed would make it that much more difficult for Republicans to oppose, Democrats said.

    Senator Reid was meeting with the president Friday afternoon to consult on ways forward. A Senate Democratic leadership aide said Mr. Reid would move forward with the stripped-down bill to avoid the so-called fiscal cliff only if Senator Mitch McConnell of Kentucky, the Republican leader, agreed not to filibuster it.

    Asked whether he would do that, Mr. McConnell stepped onto an elevator and said, “Merry Christmas.”

    With just days to go before the automatic tax increases and spending cuts go into effect, Democrats are increasingly giving up hope on a major deficit reduction deal. They hope a fallback plan would win so much support in the Senate that Mr. Boehner would feel no choice but to bring it to the House floor, where a combination of Democrats and Republicans would push it to passage.

    Senator Max Baucus of Montana, the Senate Finance Committee chairman, said he was not briefed on the plan but would be willing to move forward on anything at this point.

    “Whatever has enough votes in the House and the Senate — the bigger the better — but just get the votes,” he said.

    The plan would do nothing to cut spending or put into motion changes to entitlement programs like Medicare, nor would it head off showdowns early next year on raising the nation’s statutory borrowing limit or keeping the government running when a stopgap spending law runs out in March. But it would prevent a fiscal jolt in less than two weeks.

  • Dec 21, 2012

    Jonathan Weisman

    Congressional Democrats on Friday prepared to offer their support to President Obama and the speaker of the House to strike a deal, even if it means the president’s taking another step toward Republicans.

    “We saw the failure of ‘Plan B.’ It’s time to get ‘Plan C,’ which is ‘compromise,’ and use the president’s current proposal as the basis,” said Representative Steve Israel of New York, the chairman of the Democratic Congressional Campaign Committee. “We’re prepared to step up and get him the 218 votes, as long as it’s fair and balanced, which the president’s currently is.”

    Even before Thursday night’s Republican rebellion, polls showed that Americans strongly support Mr. Obama’s position on taxes, and more broadly that they are inclined to blame Republicans for the failure to get a deal. That could give the president carte blanche to stand his ground behind his last offer, which would allow taxes to rise on incomes over $400,000, raise $1.2 trillion in revenues over 10 years, cut $930 billion in spending over a decade and save $290 billion in interest payments on a lower national debt. By the White House’s count, that would be balanced, $1.2 trillion in taxes, $1.2 trillion in savings, on top of $1 trillion in spending cuts agreed to last year.

    But at a Democratic leadership meeting after the Thursday vote was called off, Democrats discussed further concessions. Those could include raising the income threshold for tax increases to $500,000 and possibly inching higher on the $400 billion in federal health care savings Mr. Obama has offered.

  • Dec 21, 2012

    John Harwood

  • Dec 21, 2012

    John Harwood

  • Dec 21, 2012

    John H. Cushman Jr.

    Representative Tim Huelskamp, a conservative Republican from Kansas who led the House Republicans’ resistance to House Speaker John A. Boehner’s fiscal plan, said on Friday morning that he would not vote for any approach that raised taxes on anyone, no matter how wealthy.

    Mr. Huelskamp said he blamed the failure Thursday night of Mr. Boehner’s effort to pass the “Plan B” legislation on the House Republican leaders, as well as on Senate Democratic leaders and President Obama. He also criticized Mr. Boehner and the Senator majority leader, Harry Reid, for leaving town until after Christmas.

    “Let’s do Plan W — go to work,” Mr. Huelskamp said. “We can still get this done.”

    Mr. Huelskamp took this strikingly uncompromising stance in an appearance on MSNBC’s “Morning Joe” show. He described the Boehner approach to negotiations with the White House as a “dive left.”

    “We don’t have to raise taxes on anyone,” he said.Read More     

    Without Congressional action on some kind of compromise, taxes will be raised automatically next year in all tax brackets.

    Mr. Boehner’s office said the speaker would talk to the press at 10 a.m. Friday morning.

    Mr. Huelskamp, a frequent critic from the right of his own party’s leaders, was one of three conservative Republicans ousted from committee assignments after the November elections by Mr. Boehner, apparently because they did not toe the party line.

    In a statement on his Web page explaining his opposition to the Boehner plan, he called it “a ‘show’ bill that asks us to compromise on our principles.”

    “Republican leadership thought they could silence conservatives when they kicked us off our committees,” he said. “I’m glad that enough of my colleagues refused to back down after the threats and intimidation.”

    Also on Friday, Representative Steny H. Hoyer of Maryland, the second ranking Democrat in the House, said on MSNBC that he hoped the collapse of the Boehner plan would open a path to compromise.

    He said that would mean shaping a “balanced, fiscally effective” formula, presumably including higher taxes on wealthier people — but he would not be pinned down on a specific income level.

    “Democracy is compromise, ” he said. But on the subject of tax increases, he said, “zero is the answer to a large number of Republicans.”

  • Dec 21, 2012

    Annie Lowrey

    In their efforts to resolve the pending fiscal crisis, Republican and Democratic negotiators are struggling to thread a very fine needle: finding budget cuts big enough to help stabilize the country’s long-term debt but palatable enough to sell to both sides and the public at large.

    Part of the challenge is that the biggest, fastest-growing expenses tend to be the ones Americans object most to cutting. Last year, a Kaiser Family Foundation and Harvard School of Public Health poll asked respondents whether they would support major, minor or no reductions to a number of programs.

    Over all, Americans were most willing to cut foreign aid, spending for the war in Afghanistan and salaries and benefits for federal workers. But Congress could eliminate spending on foreign aid and Afghanistan entirely and still be left with large deficits.Read More     

    As of the 2011 fiscal year, the government was spending about $22 billion a year on foreign aid and $120 billion on the conflict in Afghanistan. But for the past four years, it has run deficits of more than $1 trillion a year. As for federal salaries, they have been frozen for the past two years. And if all federal civilian workers took a 10 percent pay cut, that would amount to roughly $19 billion a year in savings.

    Americans were far less willing to cut Medicaid, Social Security and Medicare. But those programs pose far and away the biggest challenge to the long-term fiscal health of the country, as Ben S. Bernanke, chairman of the Federal Reserve, and a number of other economic experts have long warned. Rising health care spending is often singled out as the one most pressing factor.

    Moreover, Congress has already wrung billions in savings from discretionary spending programs. According to an analysis by the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group, the Budget Control Act passed last year contained about $1.5 trillion in spending cuts over 10 years, about two-fifths from defense and three-fifths from other discretionary spending. That will shrink nondefense discretionary spending — meaning public education, agriculture, infrastructure, aid to the poor and numerous other programs — as a share of economic output to its lowest level since 1962 at least.

  • Dec 20, 2012

    Jonathan Weisman

    House Republican leaders, after three difficult days of wrangling support, headed toward a vote on Thursday on Speaker John A. Boehner’s backup plan to avert a fiscal crisis by canceling January tax increases for all but the wealthiest Americans, while leaving the tougher fights on spending to future battles. Read more

  • Dec 20, 2012

    Jonathan Weisman

  • Dec 19, 2012

    Jeremy W. Peters

    WASHINGTON — Despite the dueling news conferences and stream of well-rehearsed sound bites from the White House and Congress about the budget talks, one element is still largely missing from the debate: details about spending cuts.

    Beyond numbers so large they are virtually meaningless to most Americans and a few specific proposals, like an adjustment to the Social Security formula, neither side has said much about how it wants to cut federal spending. Given that tax increases — the most discussed point of the negotiations — would by themselves only bring in a fraction of the $1.2 trillion in new revenue the president has called for, the omissions are all the more glaring.

    At times, the comments can seem like funhouse mirror images.Read More     

    “Mr. President, let’s talk about a balanced plan, but where are your specifics on the spending cut?” Representative Eric Cantor, the Republican majority leader, said recently.

    The following day, Representative Nancy Pelosi, the Democratic leader, chided her Republican colleagues for writing to the president to propose steep spending cuts and $800 billion in new revenue. “The Republicans sent a letter — perhaps you saw it? It had a number in it. It had no specifics,” she said.

    The lack of specificity is especially striking from Republicans, because they favor a deficit package composed largely of spending cuts.

    There are several reasons that neither side is saying much publicly about the numbers.

    First, both sides generally prefer taking a “you-first” posture in budget negotiations. Although polls show that a majority of Americans favor generic spending cuts, the largest federal programs — Medicare, Social Security, Medicaid and the military, among others — are all popular. That gives politicians reason to stand back while the other side details proposed cuts, and then to criticize those plans.

    Second, this phase of budget talks revolves mostly around overall savings. The specifics are likely to be hashed out early next year, creating further reason for the parties to keep their views to themselves for now.

    “The notion that we’d put out a document that anyone could use to pick apart and bash us with, that just doesn’t really gain us anything in the negotiations,” said Representative James Lankford of Oklahoma, who sits on the Budget Committee and is a member of the House Republican leadership.

    With a tinge of irritation in his voice, he added: “I do find it rather interesting the short-term memory that many people have, saying we haven’t received a list of specifics from the House. We’ve actually sent two.”

    Mr. Lankford was referring to two bills passed this year by the Republican-led House that contain what Republicans say are the meat of their spending cuts. The principal bill — the “Ryan budget,” named after its main architect, Representative Paul D. Ryan of Wisconsin, the committee’s chairman — would overhaul programs like Medicare and reduce spending by trillions of dollars in proposed cuts over the next decade.

    The second bill included similar reductions as a way of avoiding automatic cuts that are scheduled to take effect on Jan. 1 if a deal is not reached, including paring services like food stamps, children’s health insurance and Medicaid.

    Democrats tried to turn the 2012 campaign into a referendum on many of those proposed cuts, making Republicans think that it would be unwise to relight those battles. Since the election, members of the Republican conference, usually a restless bunch, have been reticent to talk more about spending.

    “It really has surprised me a bit,” said Representative Scott Rigell, Republican of Virginia, who has broken ranks with some in his party and disavowed a no-tax-increase pledge signed by almost every House Republican. “I somewhat expected when the speaker initially indicated that revenue was on the table, a bolder voice of those saying absolutely not.”

    For its part, the White House has proposed $800 billion in cuts. The president has said that half would come from federal health care programs; $200 billion from other so-called mandatory programs, like farm price supports that are not subject to annual Congressional spending bills; $100 billion from military spending; and $100 billion from domestic programs under Congress’s annual discretion.

    For members of Congress not in the top ranks of leadership, there is one more reason not to talk in detail about cuts: Many of them do not know what exactly is happening in the negotiations.

    “For us, we remain united behind the president,” said Representative John B. Larson, Democrat of Connecticut, a member of the House’s tax-writing Ways and Means Committee and one of the party’s Congressional leaders. “Everybody is always concerned about the details of any proposal. But to be brutally honest, we don’t have a whole lot of details to look at.”

    Anyone looking for more specifics is likely to be disappointed.

    “At the end of the day the deal is going to be cut by the two principal negotiators,” said Representative Tom Cole, Republican of Oklahoma. “In these types of situations you either trust your negotiator or you don’t.”

  • Dec 19, 2012

    Jackie Calmes

    President Obama insisted Wednesday that he has gone “at least halfway” in meeting Congressional Republicans in the budget talks, leaving them with “a fair deal.” He even evoked the recent tragedies of Hurricane Sandy and the Newtown shootings to prod lawmakers to settle for the nation’s benefit. Read more

  • Dec 19, 2012

    Jonathan Weisman

  • Dec 19, 2012

    Nelson Schwartz

    The White House’s effort to win support in the business community for a deal to end the fiscal impasse in Washington is set to continue on Wednesday afternoon, as top administration officials meet with the heads of some of the nation’s most powerful industry groups.

    The meeting, confirmed by individuals briefed on the session, comes in the wake of last week’s shift by the Business Roundtable to support tax increases as part of any compromise. That move provided nervous Congressional Republicans a bit of cover as the two sides seek an agreement that will cut the deficit and prevent more than $600 billion in tax increases and spending cuts from going into effect beginning in January.Read More     

    White House officials attending the session include Timothy F. Geithner, the secretary of the Treasury, as well as top advisers like Valerie Jarrett and Gene Sperling, along with Jeffrey Zients, head of the Office of Management and Budget.

    In addition to John Engler, a former Republican governor of Michigan who is president of the Business Roundtable, other industry representatives at the meeting will include Jay Timmons, president of the National Association of Manufacturers, and Thomas J. Donohue, president of the U.S. Chamber of Commerce.

    The manufacturers association and the Chamber of Commerce have been relatively quiet amid the flurry of activity by chief executives and the White House, so observers will be closely watching to see if they come out with any specific policy recommendations in the coming days.

    Several other well-known business representatives are also expected to attend — Marion Blakey of the Aerospace Industries Association, Rob Nichols of the Financial Services Forum, Tim Pawlenty of the Financial Services Roundtable and Dan Danner of the National Federation of Independent Business.

  • Dec 19, 2012
    Discussion: Plan B | 50
    Speaker Boehner has proposed a "plan B" option that would increase taxes on those making over $1 million. The scheduled fiscal cliff cuts would occur at the end of this year, and Republicans would pursue broader spending cuts when the government faces the debt ceiling in 2013. Do you believe President Obama should veto this plan if it passes though Congress?
  • Dec 19, 2012

    Jonathan Weisman

    President Obama said on Wednesday that he would veto Speaker John A. Boehner’s stripped-down “Plan B” approach to averting a fiscal crisis less than two weeks away, demanding that any package include an extension of expiring unemployment benefits and a variety of tax breaks for the working poor that are set to expire.

    “The American people have been clear that they will not accept an economic approach that places too big of a burden on the middle class, seniors, students and the most vulnerable Americans while asking too little of the wealthiest Americans,” said the White House communications director, Dan Pfeiffer. The Congressional Republican ‘Plan B’ legislation continues large tax cuts for the very wealthiest individuals — on average, millionaires would see a tax break of $50,000 — while eliminating tax cuts that 25 million students and families struggling to make ends meet depend on and ending critical incentives for our nation’s businesses. It would also cut off a vital lifeline of unemployment assistance to two million Americans fighting to find a job just a few days after Christmas.”

    The threat is more about getting deficit-reduction talks going again than stopping House legislation that would allow tax rates to rise on incomes over $1 million but do little else to get control of the deficit. House Republican leaders are trying to round up the votes to push the bill to passage in the House on Thursday, against concern among ardent conservatives over the tax increases it would allow and among military hawks over the across-the-board defense cuts scheduled for January that it does nothing to stop. Regardless, it has little chance to get a hearing in the Senate.

    “The president believes this moment presents both sides an opportunity to reach a significant, balanced deal that is good for American families, the economy and for our nation’s future,” Mr. Pfeiffer said.

    Brendan Buck, a spokesman for Mr. Boehner, Republican of Ohio, called the veto threat “bizarre and irrational.”

    “Republicans have always said a broader, ‘balanced’ plan is the ideal solution, and we have put one forward,” he said in a statement. “In the absence of a ‘balanced’ solution from the president, however, we must act to stop taxes from rising across the board in 12 days.”

    Mr. Boehner says he too wants to resume negotiations over a broader deal that prevents most tax increases next year but also locks in spending cuts and changes to entitlement programs like Medicare. But he says the president’s offer — now in its third iteration — is still too heavy on tax increases and too light on spending cuts and entitlement reforms.

  • Dec 18, 2012

    Ron Nixon

    In the new year, the dairy industry could be facing a fiscal crisis of its own.

    Unless Congress passes a farm bill or votes to extend the current law, which expired last September, milk drinkers could see prices surge to more than $6 a gallon early in the new year, government and industry experts say.

    With a possible “dairy cliff” nearing, several lawmakers are scrambling to get a stalled farm bill included in the tax and spending deal between President Obama and House Speaker John A. Boehner.Read More     

    Without action by Congress, several programs, including price supports for milk producers, expire at the end of the year. At that point, retail milk prices could soar because a complex federal milk pricing program would revert to a 1949 formula that would push up prices. Hundreds of dairy farmers also face foreclosure as a drought and high feed prices have pushed up operating costs.

    “With each passing day, the difficulty of enacting a farm bill before the end of this Congress grows,” a bipartisan group of 33 senators said in a letter last week to Senate Harry Reid of Nevada, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. “Congress must do the responsible thing and pass a full, five-year reform farm bill,” the letter said. “Accordingly, we urge you to consider folding in the Senate’s strong bipartisan bill in any end-of-year package.”

    The senators said the proposed farm bill cuts, ranging from $23 billion in the Senate version to $35 billion in the House bill, should be part of any plans to cut spending. It is unclear what version of the farm bill, if any, the White House and Republican leaders would fold into a deficit reduction package. Senators are calling for their version to be included in the deficit talks because the bill has already passed the Senate. The House bill cleared the Agriculture Committee but has not been voted on by the full House. House members have rejected the Senate bill.

    Senate and House Agriculture Committee leaders have been meeting for weeks to try and reach a compromise on the different proposals. But the two sides are deadlocked on the size of potential cuts in food stamps, which makes up nearly 80 percent of the farm bill spending. The Senate bill would cut the program by $4.5 billion over 10 years, while the House version would cut $16.5 billion over the same period. Senators have offered to make deeper cuts, they but are unwilling to go as far as the House.

    House Agriculture Committee leaders have so far rejected the Senate offer as inadequate. The House leaders said they were waiting for a “balanced offer” from the Senate.

    House lawmakers aren’t the only ones who would be opposed to the Senate bill being included in a deficit reduction deal.

    Southern farmers have also voice their objections, saying the bill favors Northern farmers. Many Southern farmers, especially rice and peanut growers, say the Senate bill would provide an inadequate safety net because it would eliminate direct payments. Direct payments cost about $5 billion a year and are given to farmers and farmland owners, whether or not they grew crops.

    Both versions of the farm bill would eliminate the payments, but the Senate bill would replace them with crop insurance, which rice and peanut farmers say is inadequate in dealing with their losses. The House bill would include a price loss program, mainly for rice and peanut crops, to subsidize farmers’ income if prices fall below target prices set by the government.

    “It is no secret that many Southern producers believe that the Senate bill is tilted toward ‘Northern interests’ at the expense of rice, peanut, and other farmers in the South,” rice producers wrote in a letter to the group of 33 senators.

    The Senate has offered to provide some additional support for rice and peanut farmers, but the proposal falls short of what House leaders and Southern farmers are demanding.

  • Dec 18, 2012

    John Harwood

  • Dec 18, 2012

    Annie Lowrey

    WASHINGTON — As part of a deal being negotiated by President Obama and Speaker John A. Boehner to avert the worst of the year-end tax increases and spending cuts, Social Security payments might be lower in the future for millions of Americans.

    On Tuesday, Democrats and Republicans were examining a multitrillion-dollar deficit reduction package put forward by the president, though the two sides were trading barbed remarks and aides were emphasizing that nothing was final until the whole deal was done.

    But the White House seemed willing to make a concession to Republicans with a switch in the formula that ensures that Social Security payments keep up with the pace of inflation — an idea that immediately proved unpopular with its liberal base.

    “Any talk of shrinking the program to save money is flawed from the start because Social Security is not part of the national budget in the same way as military spending,” Representative Raúl M. Grijalva of Arizona said in a statement. “It’s paid for through a dedicated payroll tax separate from general budgeting.”

    Manuel Balce Ceneta/Associated Press

    Representative Charles B. Rangel of New York was among many on the left who echoed that sentiment. “Everyone has a grandparent, a friend or a neighbor who relies on the Social Security benefits they earned to pay for medical care, food and housing,” he said in a statement. “A move towards chained Consumer Price Index would be a long-term benefit cut for every single person who receives a Social Security check.”

    Democrats and Republicans are considering switching Social Security payment adjustments to a “chained” Consumer Price Index. The Consumer Price Index tracks the price of a basket of commonly purchased household goods. A chained index accounts for consumers’ tendency to substitute similar items for one another as prices fluctuate. A consumer might buy more apples when the price of oranges increases, for instance.

    Though it sounds like nothing more than a technical fix, adopting a chained index would squeeze benefits over time. The chained index ends up, in a given year, about 0.3 percentage points lower than the unchained index. That difference accumulates, so after five years, it might be 1.5 percentage points lower. Using a chained index would cut Social Security spending by about $112 billion over a decade, according to an estimate by the Congressional Budget Office.

    AARP, the lobbying and research group for older Americans, immediately criticized the proposal. “We would rather see a broader discussion addressing retirement security,” said Debra Whitman, an executive vice president at AARP. “We object to the context in which it’s being discussed, which is a few weeks before Christmas, without people understanding what the change really means.”

    Because the payment reductions would accumulate over time, AARP and other groups argue that they would hit the oldest Americans disproportionately hard. They might also unduly burden women, who tend to live longer than men, and the lowest-income older people, who are most dependent on Social Security checks, the groups warned.

    Some economists and policy experts have also argued that both the current and the chained indexes underestimate the inflation that older Americans experience. The government produces an experimental “elderly index,” for instance, that tries to capture the consumption habits of people over 62 more accurately than other measures. For instance, older people buy more health care and less education than the average family, so the elderly index puts more weight on the former and less on the latter.

    In no small part because of spiraling health care costs, inflation as measured by the elderly index has grown faster than inflation as calculated by the standard index that Social Security uses. That implies that the purchasing power of Social Security payments linked to a chained index would erode more over time, given what older Americans buy.

    Andrew G. Biggs of the American Enterprise Institute.Jason Reed/Reuters Andrew G. Biggs of the American Enterprise Institute.

    Still, other economists and policy experts from across the political spectrum have argued that a chained index is a more accurate measure of the inflation that households actually experience, and therefore is a better policy tool. They note that the elderly index is still experimental, and that not just older people receive or spend Social Security payments.

    “We know that the current measure of inflation is not adequately measuring experienced inflation, and we should hence go with the better measure,” said Christian E. Weller, a senior fellow at the Center for American Progress, a liberal research group based in Washington, and the author of a plan to modernize Social Security.

    Both liberals and conservatives have at times argued against making changes to Social Security outside the context of a broader overhaul. Many analysts — particularly Democrats — argue that Social Security does not contribute to long-term deficits because it has its own financing stream in payroll taxes. But it does have a long-term fiscal challenge, as payouts would eventually overwhelm its trust fund and revenues.

    “Back when the system started, the demographics were really favorable,” said Andrew G. Biggs of the American Enterprise Institute, a right-leaning research group in Washington. “You could provide decent benefits for the rich and poor alike at low cost. You can’t do that anymore, mathematically. We could provide decent benefits for the rich and the poor by raising taxes a lot, but we need to raise taxes for other things.”

    Mr. Biggs said Social Security changes that provided more ample benefits to vulnerable low-income older people and less to the well-off might prove to be a better path forward.

    “We oppose chained C.P.I.,” Representative Peter Welch, Democrat of Vermont, said in an interview. “But I think all of us are waiting to see the details in the final package, and we’ll make our determination then.”

    Correction: December 19, 2012
    An earlier version of a caption in this post misstated Representative Raúl M. Grijalva’s affiliation. He is not affiliated with the American Enterprise Institute.

  • Dec 18, 2012

    Jonathan Weisman

    Speaker John A. Boehner, pivoting to hardball tactics just days before a deadline in the fiscal impasse, promised to bring a bill to the House floor this week that would raise tax rates only on income over $1 million and leave in place across-the-board spending cuts to military and domestic programs that Republicans have warned could have dire consequences. Read more

  • Dec 17, 2012

    Jonathan Weisman

    President Obama delivered Speaker John A. Boehner a new offer on Monday to resolve the pending fiscal crisis — and what may be close to a final deal, which would raise revenues by $1.2 trillion over the next decade but keep in place the Bush-era tax rates for any household with earnings below $400,000. Read more

    Examine the differences in the latest offers.

  • Dec 17, 2012

    Binyamin Appelbaum

    It takes only two lines to explain the federal government’s financial situation. The first shows federal spending, measured as a share of the nation’s economic output. The second shows federal revenues. And the space in between — that’s the deficit.

    To be more precise, over the last half-century, federal spending on average equaled 20.6 percent of the gross domestic product, while revenues averaged 17.9 percent.

    As those figures suggest, the government almost always runs an annual deficit. Revenue has exceeded spending in just five of the last 50 years — in 1969 and from 1998 to 2001. The rest of the time, the government has borrowed some of the money that it needs. And the next year it borrowed even more, to cover the old debts and the new deficit. Every year the government runs a deficit increases the total amount of the federal debt.

    Borrowing can be very good policy. It allows the government to provide Americans with a higher quality of life: more infrastructure, more services, more investment in the future. And as long as the economy continues to grow, the loans actually become easier to repay with time because doing so requires a smaller share of current revenue.Read More     

    Inflation helps in the same way: more dollars to repay the same amount of debt.

    Consider what happened after World War II. In 1946, the federal debt equaled 122 percent of the nation’s annual economic output, the highest level on record. And over the next three decades, the amount the government owed almost exactly doubled.

    As the accompanying chart shows, the government ran annual deficits in most of those years. But economic output, and inflation, rose even faster. By 1975, the federal debt was twice as large, but it equaled just 35 percent of the nation’s gross domestic product.

    Or consider a person who makes $10,000 and buys a home with a mortgage that requires annual payments of $2,000. Over the following decade, the person gets a few raises and a new job. Add in some inflation, and the worker is now making $20,000. The mortgage debt, however, does not increase. The person still owes just $2,000 a year.

    That’s the sunny side, but deficits can cause problems too. Greater debt requires larger interest payments. Government borrowing can soak up money that might otherwise be available to businesses and consumers. The European debt crisis is a reminder that countries sometimes cannot borrow as much as they need.

    And the federal government’s needs are getting larger. The chart shows clearly that the gap between spending and revenue has yawned wider since the mid-1970s, save for that anomalous interlude in the late years of the Clinton administration.

    In recent years, of course, the gap has grown even wider. The recession eroded revenues, and the government, seeking to stimulate the economy, increased spending.

    Over the last five years, spending averaged 22.8 percent of the nation’s annual economic output, revenues 16.3 percent.

    What happens next? That is where the two charts diverge.

    In the first situation, the government jumps from the so-called fiscal cliff. That has a certain appeal. As the chart shows, revenues would increase, spending would plunge, and the annual deficits would shrink. Economists, however, predict that the nation also would plunge back into recession. “The economy will, I think, go off a cliff,” the Federal Reserve chairman, Ben S. Bernanke, said at a news conference last week.

    In the second situation, the government makes almost no changes to current policy and annual deficits shrink slightly before expanding again. That, too, has an obvious benefit: it avoids an immediate dose of economic pain. But it leaves the larger issue unresolved. Annual deficits, and the debt, would continue to grow.

    Both the Obama administration and Congressional Republicans would like to land somewhere in between: more revenues, yes, and less spending too, but not enough of either to eliminate deficits or undermine the economic recovery.

    So far, they have not been able to agree where those lines should be.

  • Dec 17, 2012

    The New York Times

    With new concessions from Republicans on raising taxes, Annie Lowrey reports that eyes will be on how much Democrats are willing to change entitlements.

Understanding the Debt Crisis

Background

Key Questions

In Depth

Comparing the Initial Proposals

What both sides have offered in the negotiations over the nation’s fiscal path.

Who's Hurt by the Fiscal Impasse? You Decide

Decide for yourself which changes to keep and compare the impact to current policy.