U.S. 'fiscal cliff' talks stalled but progress possible

WASHINGTON Mon Nov 26, 2012 10:54am IST

The U.S. Capitol Dome is seen behind the entrance to the U.S. Senate (R) on Capitol Hill in Washington, November 9, 2012. REUTERS/Larry Downing

The U.S. Capitol Dome is seen behind the entrance to the U.S. Senate (R) on Capitol Hill in Washington, November 9, 2012.

Credit: Reuters/Larry Downing

WASHINGTON (Reuters) - U.S. lawmakers have made little progress in the past 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for January 1, a senior Democratic senator said on Sunday.

The United States is on course to slash its budget deficit nearly in half next year. Closing the gap that quickly, which in Washington is referred to as going over a "fiscal cliff," could easily trigger a recession.

"Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made," Dick Durbin, the No. 2 Senate Democrat, told ABC's "This Week" program.

Serious negotiations are expected to resume this week. Democratic and Republican lawmakers have been trying to convince the public - and financial markets - that they are willing to compromise and can reach a deal before the end of the year.

Durbin indicated Democrats might accept a reform of the government's Medicare health insurance program for the elderly that would make higher-income seniors pay more for their care.

Democrats traditionally oppose limiting Medicare benefits according to income, a practice known as "means testing." Durbin said Medicaid, a public health insurance program for the poor, also could be overhauled.

But Durbin said Social Security, the federal government pension program, needs only small tweaks to ensure long-term solvency rather than major reforms.

A deadline looms over the talks. Without action by lawmakers and President Barack Obama, roughly $600 billion in tax increases and spending cuts will start to hit households and companies in early January.

'TEST OF POLITICAL COURAGE'

Republicans are averse to Democrats' plan to raise income tax rates on the wealthiest Americans, which Republicans say would hurt job creation.

Republicans also want to cut spending on social programs more than Democrats say they will accept.

House Speaker John Boehner has called for a short-term plan to avert the fiscal cliff to pave the way for Congress and the White House to agree to work during 2013 on comprehensive tax reform and longer-term spending cuts.

But Republican Senator Bob Corker said both sides need to show "political courage" and reach a bigger $4 trillion deficit reduction deal that includes both increases in revenues and cuts in spending by the end of the year.

"Kicking the can down the road - setting up a process for token deficit reduction today with the promise of more reforms later - is misguided and irresponsible and shows a total lack of courage," Corker wrote in an editorial in the Washington Post.

TAX REVENUES

A growing group of Republican lawmakers are loosening their ties to Grover Norquist, the anti-tax activist famous for getting elected officials to sign a pledge that they will vote against any tax increases.

Republican Senator Lindsey Graham said Republicans will allow tax revenues to rise as long as social spending programs are reformed. "I will violate the pledge - long story short - for the good of the country, only if Democrats will do entitlement reform," he told "This Week."

Graham said he supported boosting revenues by closing tax loopholes rather than by raising tax rates.

Republican Senator Saxby Chambliss said last week he "cared more about the country" than a 20-year-old pledge. On Sunday, Republican Representative Peter King, chairman of the House Homeland Security Committee, told NBC's "Meet the Press" he agreed with Chambliss.

While income tax breaks have attracted the most scrutiny, lawmakers also need to come to terms on a host of other tax incentives that are set to expire at the end of the year, including an estate tax break.

Senator Max Baucus, the chairman of the Senate Finance Committee and a key player in fiscal cliff talks, told a newspaper in his home state of Montana that he wants to preserve the estate tax break, which is important for farmers who want to pass down land worth millions of dollars to their children.

Baucus also said he hopes to preserve the production tax credit for wind energy, he told the Great Falls Tribune.

(Additional reporting by Patricia Zengerle and Roberta Rampton; Editing by Todd Eastham and Bill Trott)

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