In U.S. 'fiscal cliff' maneuvers it's all about the holiday

WASHINGTON Mon Dec 3, 2012 11:57am IST

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008. REUTERS/Mark Blinch/Files

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008.

Credit: Reuters/Mark Blinch/Files

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WASHINGTON (Reuters) - Watching the events of the past few weeks, you could have gotten the idea that the United States is not only going to slip from the "fiscal cliff" but jump lemming-like off it.

President Barack Obama presented last week a proposal that upset Republicans with its $1.6 trillion in revenue increases and limited spending cuts and then goaded them while on the road at a toy factory with jokes meant to paint the Republicans as Scrooges.

His main Republican sparring partner, Speaker of the U.S House of Representatives John Boehner, then declared in a series of public appearances that the two sides are "nowhere."

And yet, seasoned Washington hands say that once this rather gloomy back and forth has played out - and it might take another week or more - the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

It's so ingrained that many Capitol Hill veterans routinely, and sometimes mistakenly, dismiss as theater pronouncements of progress or stalemate that occur more than a few weeks before the holiday.

"The Congress doesn't work on the clock; it works on the calendar," said Republican Senator Roy Blunt of Missouri, who in 15 years of serving in Congress, including leadership jobs, has been through plenty of tough scrapes.

"There is just that required moment when something has to happen because you've run out of time," said Blunt. In the meantime, "there is a desire to maximize your negotiating position until you realize you don't have any room any more to negotiate. It almost invariably works that way."

With each day that goes by, as the Washington cliche goes, the "smell of the jet fumes" - meaning the airplanes that will carry members of Congress back to their home states for vacations or to foreign destinations on taxpayer dollars - gets stronger and stronger.

With December's onset bringing Christmas sharply into focus, the pace of fiscal cliff negotiations between Democrats and Republicans will pick up starting this week, according to lawmakers and their aides.

Technically, there is a December 31 deadline for Obama and Congress to find a way to avoid hundreds of billions of dollars in tax increases and spending cuts that experts say would give Americans a hangover far worse than what any drunken New Year's Eve celebration could deliver.

But for the 535 members of the U.S. House of Representatives and Senate, who need deadlines to force them to accomplish anything big, it is the threat of having to work through Christmas that is fueling the oncoming mad dash to a deal - or at least a deal to eventually get a deal.

While no formal negotiating sessions are on the schedule between Republicans and Democrats, expect the pace of work by staff members to pick up, along with the back-and-forth exchanges on television and in op-ed pages of the sort that got going last week.

Obama could move the ball - or not - on Monday, when he has an unrelated public appearance, or Tuesday, when he speaks to the National Governors Association, or Wednesday, at a meeting with the Business Roundtable, the Washington lobbying arm for CEOs. Boehner will surely respond to anything he says.

Democrats in the House of Representatives have threatened to force a vote on the tax increases if Republicans don't schedule one by Tuesday. Republicans, who control the House and the timing of votes in it, have no intention of bringing a bill to the floor this week.

That could produce some heat.

But do not expect breakthrough concessions. It's too soon.

"I think we're in the initial stages," Democratic Senator Max Baucus said Friday in a CNN interview. "There are about 30 days left before the so-called cliff hits us. I think, in about a week, we will get down to serious negotiations.

That was illustrated in a round of Sunday news show appearances by Treasury Secretary Timothy Geithner, President Barack Obama's chief negotiator, and Boehner in which nothing new was uttered.

Geithner stuck to his demand that income taxes rise immediately on families with net incomes above $250,000 a year.

Boehner stuck to his insistence that the administration present what he called a "serious" plan for deficit reduction before Republicans get serious on the subject of revenue.

ERODING THE CLIFF

Blunt's Republican colleague, Pennsylvania Senator Pat Toomey who pushed his own deficit-cutting plan that Democrats pounded last year when Congress was up against another deadline, worries about the last-minute deal-making.

"It's not a good idea at all because the real problem is a spending problem. To address that, it's hard to do at a moment's notice. It requires some thoughtful legislation to get the kind of reforms that generate the savings we need," Toomey said in a brief interview.

Market analysts don't think much of Washington's rhythms either, particularly when it involves a single potentially calamitous event - like going off a fiscal cliff.

"The concerns on the fiscal cliff - as valid as they might be - could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

(Additional reporting by Thomas Ferraro and David Lawder; Editing by Fred Barbash, Martin Howell and Cynthia Osterman)

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