* Consensus may be forming to delay reckoning
* No agreement on Bush-era income tax cut extension yet
By Richard Cowan
WASHINGTON, Sept 21 Slowly and quietly, the U.S.
Congress may be arriving at a consensus on how to avoid falling
off the "fiscal cliff" on Dec. 31 - by simply putting off its
own deadline for most of the major year-end budget and tax
That approach would delay the day of reckoning while also
allowing more time for compromise in a Congress that has battled
for two years over how best to reduce huge budget deficits.
No formal agreements have been reached, however, and turning
a consensus into an actual deal that avoids jolting the markets
or economy will depend on the results of the Nov. 6 general
The "cliff" refers to the year-end deadline for the
expiration of hundreds of billions of dollars worth of tax cuts
and the triggering of $109 billion in across-the-board spending
cuts. The non-partisan Congressional Budget Office has said the
scenario could throw the country into recession.
Congress created the hazardous end-of-year deadline in
August 2O11 when it agreed to a deficit deal as a way out of a
deadlock over raising the U.S. debt ceiling.
In recent weeks, lawmakers of all political stripes, from
conservative Republicans to liberal Democrats in the Senate and
House of Representatives, have alluded to surprisingly similar
hopes for the high-stakes "lame-duck" work session that will
follow the November presidential and congressional elections.
They would put aside the $109 billion in "automatic"
across-the-board spending cuts that otherwise would hit military
and domestic programs equally.
They would make some new, possibly smaller down payments on
deficit-reduction for the near-term. Then they would write a new
deadline - maybe March 31 or June 30 - to come up with a grand,
$4 trillion deficit-reduction program over 10 years; and devise
a new method for forcing a divided Congress to act.
The entire exercise would be aimed at finding a long-term
fix for U.S. fiscal problems without the jolt of indiscriminate
spending cuts and tax hikes that would occur under current law.
RUNNING FOR COVER
The threat of a possible recession after such blanket
spending cuts now preoccupies Washington.
Among the fearful are the big-company CEOs represented by
the Business Roundtable, for example, and Ben Bernanke, the
chairman of the U.S. Federal Reserve, who briefed members of
Congress this week after declaring that "I don't think our tools
are strong enough to offset the effects of a major fiscal shock"
of the cliff.
The most vocal Democrats and Republicans in Congress have
turned the floors of the House and Senate into pre-election spin
rooms as each side tries to pin the blame on the other.
But a stream of ideas to delay the Dec. 31 day of doom
floats through Capitol Hill brainstorming sessions.
* Liberal Democrat Dick Durbin, the second-ranking Senate
Democrat, has alluded to a six-month delay, coupled with a $40
billion to $50 billion deficit-reduction down payment for the
first half of the year.
* Conservative Republican Senator Lindsey Graham has touted
a "mini deal" in November or December to delay decisions through
March. It would contain a $20 billion deficit cut.
* Senate Budget Committee Chairman Kent Conrad, a longtime
Democratic deficit hawk, said the "optimum outcome" would give
Congress six more months to work out details on revamping the
tax code and big government programs like Social Security and
In the meantime, Conrad wants Congress to strike a
"framework agreement" during the lame duck session on a 10-year
plan for $4 trillion in deficit reduction. He also wants a deal
during the lame duck session on "hundreds of billions in revenue
and spending to demonstrate credibility" on deficit-reduction,
as well as new enforcement procedures if lawmakers fail to act
or put up procedural hurdles. It's a tall order for a short
* Moderate Republican Representative Steven LaTourette, who
has had close ties to House Speaker John Boehner and is retiring
at year's end, said: "I do think there will be a strong push by
not only the (House Republican) leadership, but quite frankly
the majority of Republicans, to do the big deal...by Easter
* A huge question for any of the plans: What happens to the
Dec. 31 expiration of across-the-board income tax cuts enacted
by President George W. Bush while Congress works next year on a
big fiscal plan?
The Nov. 6 election likely would decide this. If President
Barack Obama is re-elected and with a strong majority, it could
boost his position for continuing the tax cuts, except for those
families earning over $250,000.
If Republican challenger Mitt Romney wins, he is almost
certain to demand a complete renewal of the Bush tax cuts,
although he would not take office until Jan. 20.
"I've thought for a long time that when they finally get to
... the lame duck, that everybody will have to blink because
there's not time" to tackle all the tough issues at hand, said
former House Majority Leader Richard Gephardt, a Democrat who is
now a lobbyist.
Gephardt, who worked on major budget and Social Security
reform deals during his long congressional career, also noted
that after the elections, there will be plenty of defeated or
retiring members of Congress who "just don't want to spend a lot
of time on this stuff."
If the outcome of the election is indecisive, a protracted
end-of-year struggle could produce market fluctuations
reminiscent of those in 2008 when the House of Representatives
put up resistance to the financial industry bailout known as
Euan Munro, who oversees Standard Life's $27.3 billion
Global Absolute Return Strategies portfolio, said his firm is
braced for some political eruption later this year owing to the
fiscal cliff. "We could certainly see some volatility in the
stock markets, as we did with TARP," said Munro. "You need the
political will to reconcile big fundamental issues like this."
In the meantime, a Congress that made deficit reduction its
central theme last year is winding up with little to show in the
way of actual deficit reduction.
The numbers tell the story. Federal red ink in 2009: $1.4
trillion. The 2011 deficit: $1.3 trillion. Projected 2012
deficit: $1.1 trillion.
Lawmakers' inability to get a handle on these huge deficits
is largely due to their refusal to make tough decisions on taxes
and big-ticket military and entitlement program spending,
according to experts such as Robert Bixby, executive director of
the non-partisan Concord Coalition. But it has been further
complicated by the high costs of running government while the
economy has been so weak.
A year-end failure by Congress could mean "the first
recession that is caused by political roadblocks," Minnesota
Economist Tom Stinson told the StarTribune newspaper in
Minneapolis-St. Paul recently.
Attempting to put in layman's terms the potential impact of
imposing "$650 billion worth of fiscal drag" on the economy,
Stinson told Reuters in a telephone interview that falling off
the fiscal cliff would be "roughly the equivalent of going to
bed on December 31 with gasoline (prices) at $3.85 a gallon and
waking up next morning with gas at $10.35 a gallon."