Senate Democrats Move Toward a Fiscal Cliff

Senate Democrats will allow all Bush-era tax cuts to expire and automatic spending cuts to kick in if they cannot reach an agreement with Republicans on extending tax cuts for the wealthy. Senator Patty Murray (D-Wash), Head of the Democratic Senatorial Committee and past Chair or the Super Congress, said if "we can't get a balanced deal that call on the wealthy to pay their fair share, they will continue this debate into 2013, rather than lock in a long-term deal this year that will throw middle-class families under the bus." The Congressional Budget Office (CBO) warned in May this year that the country would fall into recession by mid-2013 if the $607 billion in tax increases and spending cuts went ahead as scheduled. Brookings Tax policy specialist, William Gale,said he believes the Democratic proposal is much more than just a "negotiating tactic". He said there is a real possibility the standoff will continue over the fiscal cliff, and suggested that may not be so bad. Letting the tax cuts expire and the allowing the sequestration to take place could provide a more conducive environment for tax reform. More revenue and less spending would take the pressure off, providing not only an opportunity to reach a budget deal, but with both sides forced to give ground, the "incentive" to reach an agreement will be stronger. Murray's proposal is risky but plausible. An initial period of market volatility and manadatd discussions would drive Congress to agreement before the end of January and before the CBO's predicted recession had a chance to kick in. The bigger risk is addressing the tax reform.