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'Cliff' crash may clear way for deal in January

Sunday - 12/16/2012, 8:26am  ET

Senate Majority Leader Harry Reid of Nev., second from left, accompanied by fellow Senate Democratic leaders, pauses during a news conference on Capitol Hill in Washington, Thursday, Dec. 13, 2012, to discuss the stalled fiscal cliff negotiations and other unfinished business in the Senate. From left are, Senate Majority Whip Richard Durbin of Ill., Reid, Sen. Patty Murray, D-Wash., and Sen. Charles Schumer, D-N.Y. (AP Photo/J. Scott Applewhite)

CHARLES BABINGTON
Associated Press

WASHINGTON (AP) -- To get to "yes" on a "fiscal cliff" accord, Congress and the White House first might have to get to "no."

That is, an impasse that sends them over the cliff by missing their Dec. 31 deadline to pass a major deficit-reduction plan.

Such a breach would immediately change the political dynamics, making it easier for many lawmakers -- especially Republicans -- to agree to a second-chance compromise in the new year.

This scenario strikes a good number of Washington insiders as irresponsible and improbable -- who knows how the markets will react? But others argue it will be easier to round up the congressional votes needed for a big compromise if the deadline passes and lawmakers rush back to Washington next month under a starkly new political reality.

The new landscape would allow President Barack Obama to face his liberal base -- and, more importantly, let House Republicans face their conservative constituents -- and say in essence: "See, I did the best I possibly could, and it didn't work. The other side didn't blink. Now everyone's taxes have gone up, and it's time for compromise."

So long as there is even a day left to negotiate, some hard-liners in both parties will demand that their leaders hold fast. Having the Dec. 31 deadline expire would finally show there's no more time to negotiate.

A number of lawmakers in both parties say the fiscal cliff could actually become a gentle slope, with the economic impact quickly mitigated under circumstances easier for Republicans to swallow.

"We can do something on the third of January which isn't unreasonable," said Rep. Jack Kingston, R-Ga., a 20-year House veteran. "And I think it'll pass the Senate real quickly."

Here's why Kingston and others think a deadline breach might make it easier to reach a bipartisan compromise in early 2013:

First, income tax rates on virtually every American will have risen automatically, starting Jan. 1. Other levies, including a payroll tax and estate taxes, also would rise. And large spending cuts would start affecting the military and many other government programs.

The political debate has focused on income tax rates, which most congressional Republicans have vowed never to raise. Obama campaigned on a pledge to raise those rates on the wealthiest Americans. He won the election, of course, and new polls show most Americans support his view.

GOP lawmakers face a difficult choice. To pass any bill that Obama seems likely to sign, they must break their pledge by agreeing to raise tax rates on high incomes -- such as those above $200,000 for individuals and $250,000 for couples.

If they refuse, and Obama doesn't back down, the government goes over the cliff, and everyone's taxes rise.

While negotiations on spending cuts might be difficult, Obama and his fellow Democrats presumably would offer Republicans the same tax-rate deal as before: They'd push a bill that removes the new tax hike on about 98 percent of Americans -- couples making below $250,000 --while leaving the new increase on the richest 2 percent.

Suddenly, Republicans would be able to vote to cut taxes on the vast majority of Americans. And they would not have to raise taxes on anyone because the new, higher rate on the wealthy would already be the law.

Much has been written about how this scenario would strengthen Obama's negotiating hand.

Less remarked upon, however, is the likelihood that the same scenario would let scores of Republican lawmakers off the political hook. They could honestly tell their constituents they never voted to raise tax rates on anyone.

John Feehery, who was a top aide to former House Speaker Dennis Hastert, R-Ill., said a breach of the Dec. 31 deadline is likely and useful. Lawmakers "should agree to disagree for the rest of the year, and then agree to agree early in the new year," Feehery said. "It's far easier to cut taxes than raise taxes. And if they wait until next year, they can make that happen fairly quickly."

Kingston, who has held GOP leadership posts in the past, said simply allowing the higher, Clinton-era tax rates to take effect in January is not sustainable for either party politically.

"But it keeps our guys from having to vote for a tax increase," Kingston said, and a new tax law cutting most of those rates back could be enacted quickly.

Using the bureaucratic word for deep spending cuts, Kingston added: "We also get sequestration, which I don't think our side is fearful about. The military gets the brunt of it," he said, but its budgets have grown dramatically in recent years.

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