Fiscal Cliff, Grand Bargain, and Kick the Can Down the Road

Hope Wittenberg

Hope Wittenberg, MA
Director, Government Relations

What do these have in common? They are the new post-election lexicon of legislators and lobbyists, pundits and commentators. What do the election results mean for the lame duck session of Congress that begins this week?

I attended a post-election program the morning after the election, put on by the National Journal, which had various experts providing their views of the election’s impact on key economic issues and the political fallout from the election. There are three major economic realities coming in the next 2–4 months. First, we have the Bush era tax cuts expiring on December 31. If not attended to, tax rates for individuals and businesses will rise dramatically. Our second fiscal obstacle is the Congressionally mandated sequestration, due on January 1, cutting a swath through defense and non-defense spending alike, with some cuts to entitlement programs, such as Medicare. The third hurdle we face is the climb toward the debt ceiling; we’re expected to approach that peak in February or March.

What can we expect? There are basically two options for Congress. They can deal with these limits by passing debt reduction legislation during the lame duck session, achieving a “Grand Bargain” that will resolve our fiscal crisis before these events take place. This, of course, has proven impossible to date with the current makeup of Congress.

What would a Grand Bargain consist of? Would it include tax hikes, entitlement reform? What would be on the table? Were the election results influential enough to cause the current makeup of Congress to work with the president? Does the president have additional leverage? Some say he has a bit, but others say the tone and climate of the relationships between the president and the Congress must change for that to happen. There seems to be a consensus that deals can’t be crafted between the president and the four leaders of the House and Senate. The president needs to involve members of each party and both bodies, not just the leadership, to arrive at a consensus to move forward.

The second option for addressing the looming economic hurdles, and one seemingly expected by the pundits, is a short-term delay, from 3 to 6 months, to allow the new Congress time to deal with the debt problems. This “Mini Deal” would suspend a certain amount of sequestration on both defense and discretionary programs. There are several reasons that this is a distinct possibility. With about 50 calendar days left of this Congress, and only 16 legislative days, this might be the only viable option. Moreover, if the tax cuts are allowed to expire on January 1, and sequestration is postponed for a few months, Congress would have more funds to deal with. Once the tax cuts expire, Congress can put back many, but not all, of them, and both Republicans and Democrats would be able to claim that they have not increased the tax burden; in fact, they’ve provided new relief to large portions of the electorate. In addition, should the tax cuts expire, Republicans from this Congress would be off the hook regarding their signing of the Grover Nordquist “no new taxes” pledge. Members of the new Congress could choose not to sign such a pledge.

One key physician issue that is caught up in this high-stakes game of chicken is the January 1 scheduled large drop in the Sustained Growth Rate (SGR), cutting physician payment by almost 30%. Since Congress can make any legislation to resolve the debt crisis or sequestration retroactive, the largest concern is what the markets would do during the period of harsh fiscal cuts. For physicians, the additional concern over how this might affect claims and reimbursement looms large.

Interestingly, both Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH) have stated that they are ready to resolve the issues during the lame duck session, rather than kicking the can down the road. Speaker Boehner even went so far as to say that House Republicans are “willing to be led” on taxes, meaning they could accept new revenues under the right conditions. As part of tax reform, they could consider new revenues, but only if entitlement program reforms, such as Medicare, are also on the table. In the days since the election, comments from both sides of the aisle raise a great deal of uncertainty over how willing Congress and the president will be to compromise.

There are a few nuances of leaving these decisions for the new Congress. The new Congress will have more House members who have been in office less than two terms than they’ve had since 1992. The Senate will have a larger democratic majority and includes the highest number of women (20) ever.

The resounding cry from Americans with respect to this election was, “Why can’t Congress get the job done?” A clear answer to that question was given by former Representative Richard Gephardt, who stated, “A member of Congress in either party doesn’t want to vote for any of this stuff; it’s all toxic. There’s no benefit to them personally. It takes a high act of patriotism on the part of both Democrats and Republicans because they’ll have to cut spending, cut programs, and raise taxes—causing lots of political pain. Some will have to give up their political career to vote for a bargain.”

What else has the election put back on the top of Congress’s list of issues to address? There is increasing sentiment that immigration reform may take center stage. On the one hand, President Obama will still be looking for a legacy he can leave the country (in addition to health care reform). Republicans, on the other hand, need to do something to widen their base of support into the Latino community. Equal Pay for Equal Work legislation might also move forward with Republicans taking note of the declining support for their candidates among women voters. One other factor to consider as the new Congress takes over is the issues the new chairmen of the Committees in both the House and Senate put on their plates.

On the good news front, this election has solidified the survival of health care reform. There will not be an opportunity to repeal the Affordable Care Act during the next session of Congress. Instead, much of the work at the state and federal levels will begin regarding development of insurance exchanges and implementing other pieces of the law. Many states, such as Virginia, that have waited to see the results of the election, will now have to move forward rapidly.

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