(Bloomberg) Senate Majority Leader Harry Reid predicted that Congress will reach a deal after the Nov. 6 election to avert hundreds of billions of dollars in tax increases and spending cuts known as the “fiscal cliff” set to begin in January.
“I do not believe that we are going to go over the fiscal cliff,” Reid, a Nevada Democrat, told reporters in Washington Thursday, adding that he opposed a short-term deal. “I’m in favor of long term.”
Unless Congress acts, $1.2 trillion in automatic spending cuts will begin in January and the George W. Bush-era tax cuts will expire Dec. 31. The Congressional Budget Office estimates that the fiscal changes would amount to $607 billion in tax increases and spending reductions for 2013 alone. Democrats propose letting tax cuts expire for top earners, while Republicans want to extend the tax cuts for everyone and back spending reductions instead of more tax revenue.
Congress is set to leave town at the end of the week to campaign for the Nov. 6 election without resolving how to address the tax cuts or spending reductions.
Senator Richard Durbin of Illinois, a Democrat, told reporters today that the partisan divide in Congress that has impeded a deal would diminish after the election.
’Holding Back’
“There is a sentiment moving towards a bipartisan solution, and we have to wait for the outcome of the election,” Durbin said. “People are obviously holding back until they see that.”
Durbin is a member of the bipartisan Gang of Six that last year crafted a deficit-reduction framework based on the failed 2010 Simpson-Bowles commission. The group has since expanded to include Senator Michael Bennet, a Colorado Democrat, and Senator Lamar Alexander, a Tennessee Republican, among others, and its members say they want to develop a proposal that can galvanize senators when Congress returns in mid-November.
Senator Ben Cardin, a Maryland Democrat, said discussions are under way among senators about how to avert the fiscal cliff.
“The Senate probably has more consensus on the need for us to come together than the House and I think there’s a lot of us on both sides of the aisle trying to figure out where we can,” Cardin said in an interview.
Top Earners
Former Senator Byron Dorgan, a North Dakota Democrat, said the relatively low tax rates paid by billionaire Warren Buffett and Republican presidential candidate Mitt Romney have crystallized debate over top earners’ taxes and made the policy easier for moderate Democrats and Democrats in Republican- leaning states to support.
“There’s been such debate about it,” said Dorgan, who didn’t seek re-election in 2010 and is now a senior policy adviser at Arent Fox LLP in Washington. “The Romney example is so clear. I think everybody in the country now understands it.”
Some Republicans are less optimistic and say the divide between the parties on tax policy will continue to be a barrier to a post-election agreement, regardless of the outcome of the election.
“You get back to the same old issue that we haven’t been able to bridge the gap, that has prevented agreement,” said Jon Gans, a former senior adviser to Senator Jon Kyl, an Arizona Republican. Gans is now a managing director at the Glover Park Group, a communications firm in Washington.
House Speaker John Boehner, an Ohio Republican, said on Sept. 11 that he was “not confident at all” that Congress would reach a deal on avoiding $1.2 trillion in spending cuts set to take effect in January. The cuts, known as sequestration, are the result of a 2011 deficit-reduction agreement.
Boehner made his comments on the day that Moody’s Investors Service announced it may downgrade the U.S. credit rating unless Congress finds a way to reduce the percentage of debt-to-gross domestic product. Moody’s said it would extend the Aaa rating with negative outlook beyond 2013 if the fiscal cliff materialized.
