Story Summary

‘Fiscal Cliff’

Democratic and Republican lawmakers are locked in a debate over a so-called “fiscal cliff,” where some automatic spending cuts will take place unless action is taken.

There are fears that if the country goes over the cliff, a second recession will take place.

Congress has until Dec. 31.

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Pres. Obama Fiscal Cliff Presser

President Obama said at a press conference after meeting with congressional leaders he is “modestly optimistic” a deal can be reached on the looming fiscal cliff.

(CNN) — A possible deal to avert the midnight deadline for the “fiscal cliff” of automatic tax increases and spending cuts began to take shape Monday, including an agreement to raise the income tax rate on top earners to what it was during President Bill Clinton’s last term in office, according to sources close to the process.

The potential deal also includes an increase in the estate tax and an extension of unemployment benefits, according to the sources.

Other issues remain in play, and it remains to be seen how the GOP-controlled House, which earlier refused to back a $1 million threshold for higher taxes, would respond to any deal.

But the two sides are closer to an agreement than they were Sunday, the sources told CNN.

The developments allowed a slight sense of optimism to creep into the discussion as Congress worked in a rare New Year’s Eve session.

“I think now there’s a better than a 50-50 chance that we will avoid the fiscal cliff by midnight tonight,” said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee.

The proposed agreement would raise rates on top earners to Clinton-era levels, which topped out at 39.6% in 2000 before falling to the current 35% under tax cuts championed by President George W. Bush. It was unclear if the proposal would adjust the tax rates for inflation, but sources said it would spare 98% of Americans from any tax increase.

Just who would pay higher taxes remained a moving target Monday.

President Barack Obama and his Democratic allies waded into the debate about the fiscal cliff seeking tax increases on individuals making more than $200,000 and families with incomes above $250,000. He later offered to raise the threshold to $400,000 as part of a larger deal.

Sen. Dick Durbin, D-Illinois, said Republicans have now offered a $450,000 income threshold for individuals and $550,000 for couples. Democrats countered with $360,000 for individuals and $450,000 for couples, he said.

The movement comes a day after negotiations hit a stumbling block over a Republican demand that a deal include changes to how Social Security benefits are adjusted for inflation.

Senate Majority Leader Harry Reid chastised Republicans for putting up the Social Security issue, while Senate Minority Leader Mitch McConnell appealed to Vice President Joe Biden to help “jump-start” negotiations after complaining that he had received no response to an offer he put on the table.

“I want everyone to know I’m willing to get this done, but I need a dance partner,” said McConnell, R-Kentucky.

Reid, D-Nevada, had said earlier that McConnell had shown “absolutely good faith” in the talks, but “it’s just that we are apart on some pretty big issues.”

If nothing gets done before Monday at midnight, when the Bush administration’s 2001 and 2003 tax cuts expire, broad tax increases will kick in, as will $110 billion in automatic cuts to domestic and military spending.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%.

McConnell and Biden, who served together in the Senate for more than two decades, had a “pretty fruitful” conversation Sunday, said Sen. Bob Corker, R-Tennessee.

Top-level sources on both sides of the negotiations said on condition of anonymity that talks are primarily now in the hands of McConnell and Biden, and they are keeping Reid and House Speaker John Boehner, R-Ohio, informed.

On Sunday night, Boehner met with House GOP leaders and told them to sit tight and stick together as he awaits news on whether the Senate can strike a deal.

After the meeting, Rep. Tom Cole, R-Oklahoma, told reporters that Boehner said: “I’ve stayed out of those negotiations.”

“Every time we get involved in them, we sort of get burned, so we’re going to let the Senate work its will, see what they do and what they send us, and we’ll act accordingly,” he said.

As he headed home Sunday night, Reid was asked about progress, and he said: “Talk to Biden and McConnell.” On Monday, McConnell declined to say if he was optimistic.

Obama, meanwhile, laid the blame over the stalemate at the feet of Republicans.

“They say that the biggest priority is making sure that we deal with the deficit in a serious way. But the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” he said Sunday on NBC’s “Meet The Press.”

“That seems to be their only overriding, unifying theme.”

During the interview, Obama said he was willing to consider changing the way inflation is calculated for Social Security benefits, meaning that future Social Security recipients would receive less money over time, even though it was “highly unpopular among Democrats” and opposed by the AARP, the powerful lobby for seniors.

“In pursuit of strengthening Social Security for the long term, I’m willing to make those decisions,” Obama said.

“What I’m not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I’m not willing to do.”

But a Democratic source, who did not want to be identified because of the closed nature of the talks, said members understand Obama proposed making inflation adjustments to Social Security benefits as an element of a larger deal that also would change how the federal debt ceiling is adjusted — an element no longer included in the plans.

Most Democrats oppose the inflation adjustment to Social Security, known as “chained CPI,” but many were wiling to go along with it as part of a larger deal, the source said.

Sen. Chuck Schumer, D-New York, told ABC’s “This Week” that he thought the chances of a short-term, last-minute deal brokered by Senate leaders were better than 50-50, while Sen. Lindsey Graham, R-South Carolina, told CNN that Obama will probably win the fiscal cliff battle, but it will do little to help the nation’s deficit problem.

“The president will get a political victory, a trophy for the president politically, but it will not change our debt situation or reduce our deficit in any meaningful way,” Graham said. “It will be a political victory that is hollow in nature when it comes to preventing our country from becoming Greece.”

Other Republicans argued Sunday that Obama’s plan hasn’t done enough to limit spending.

“The president is doing nothing about the addiction that his administration has to spending. He’s the spender in chief,” Sen. John Barrasso of Wyoming said on CNN’s “State of the Union.”

 

By Chelsea J. Carter

CNN’s Matt Smith, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

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(CNN) — Senate Republicans and Democrats remain far apart in their effort to avert a year-end combination of spending cuts and tax increases that could trigger a new recession, Majority Leader Harry Reid said Sunday.

“There’s still significant distance between the two sides, but negotiations continue,” Reid said as Congress held a rare Sunday session in a bid to avoid the so-called fiscal cliff. “There’s still time left to reach an agreement, and we intend to continue negotiations.”

With barely a day left to avert what economists predict will be a one-two punch to the U.S. economy, talks hit what a Democratic source called a “major setback” when Republicans insisted that changes to how Social Security benefits are adjusted for inflation be included. Republicans have dropped that demand, but “they never should have been on the table to begin with,” said Reid, D-Nevada.

Using what’s known as “chained CPI” would change the way Social Security benefits are adjusted for inflation, meaning that future Social Security recipients would receive less money over time. Democrats consider this prospect a “poison pill,” the source said, and GOP senators said later it wouldn’t be included.

“If that is a show-stopper for the majority leader, we will take that off the table,” New Hampshire Sen. Kelly Ayotte told reporters after coming out of a Republican caucus meeting Sunday afternoon.

With the clock running down, Senate Minority Leader Mitch McConnell appealed to Vice President Joe Biden to help “jump-start” negotiations after complaining that he had received no response to an offer he put on the table Saturday night.

“I want everyone to know I’m willing to get this done, but I need a dance partner,” said McConnell, R-Kentucky. McConnell and Biden, who served together in the Senate for more than two decades, were having a “pretty fruitful” conversation Sunday afternoon, said Sen. Bob Corker, R-Tennessee.

Reid said earlier that McConnell has shown “absolutely good faith” in the talks, but “it’s just that we are apart on some pretty big issues.” He said there may be further announcements when the Senate reconvenes Monday morning: “I certainly hope so.”

If nothing gets done before Monday night at midnight, the expiration of the Bush administration’s 2001 and 2003 tax cuts will increase tax rates, while $110 billion in automatic cuts to domestic and military spending — the result of the 2011 standoff over raising the federal debt ceiling — will start to kick in. The nonpartisan Congressional Budget Office predicts the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment back over 9%.

In an interview aired Sunday on NBC’s “Meet the Press,” President Barack Obama blamed Republicans for the stalemate that brought lawmakers back to Capitol Hill on a weekend. Obama urged the GOP to drop its opposition to tax increases on top earners and cut a last-minute deal.

“They say that the biggest priority is making sure that we deal with the deficit in a serious way. But the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” he said. “That seems to be their only overriding, unifying theme.”

Obama told NBC that could cost the average middle-class family about $2,000. He said the Senate should go ahead and vote on legislation to make sure middle-class taxes are not raised and that 2 million people don’t lose unemployment benefits.

“If we can get that done, that takes a big bite out of the fiscal cliff,” he said. “It avoids the worst outcomes.”

During the interview, Obama said he was willing to consider using chained CPI to adjust Social Security — even though it was “highly unpopular among Democrats” and opposed by the AARP, the powerful lobby for seniors.

Pres. Obama Fiscal Cliff Presser

President Obama said at a press conference after meeting with congressional leaders he is “modestly optimistic” a deal can be reached on the looming fiscal cliff.

“In pursuit of strengthening Social Security for the long term, I’m willing to make those decisions,” Obama said. “What I’m not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I’m not willing to do.”

But the Democratic source, who did not want to be identified because of the closed nature of the talks, said members understand Obama proposed using chained CPI as an element of a larger deal that also would change how the federal debt ceiling is adjusted — an element no longer included in the plans.

Most Democrats oppose chained CPI, but many were wiling to go along with it as part of a larger deal, the source said.

On taxes, meanwhile, Democrats are arguing that taxes should go up for those making $250,000 or more, though some discussions have involved the possibility of raising that figure to a $400,000 threshold.

Many Republicans have opposed any increase in tax rates. House Speaker John Boehner, R-Ohio, suffered a political setback by offering a compromise — a $1 million threshold for the higher rates to kick in — that his GOP House colleagues refused to support.

After Obama’s NBC interview, Boehner said the president needs to stand up to his own party and insisted it was the president “who has never been able to get to ‘yes.'”

“I am pleased Senators from both parties are currently working to find a bipartisan solution that can finally pass that chamber,” Boehner said in a statement issued by his office. “That is the type of leadership America needs, not what they saw from the president this morning.”

Sen. Chuck Schumer, D-New York, told ABC’s “This Week” he thought the chances of a short-term, last-minute deal brokered by Senate leaders were better than 50-50.

“I’ve been a legislator for 37 years, and I’ve watched how these things work on these big, big agreements,” Schumer said. “They almost always happen at the last minute.”

And Sen. Lindsey Graham, R-South Carolina, said the chances are “exceedingly good” that some type of deal will be reached by Monday night.

“I think, whatever we accomplish, political victory to the president, hats off to the president. He stood his ground. He’s going to get tax rate increases, maybe not $250,000, but upper-income Americans,” Graham said on “Fox News Sunday.”

“And the sad news for the country is that we have accomplished little in terms of not becoming Greece or getting out of debt.”

Other Republicans argued Sunday that Obama’s plan hasn’t done enough to limit spending.

“The president is doing nothing about the addiction that his administration has to spending. He’s the spender in chief,” Sen. John Barrasso of Wyoming said on CNN’s “State of the Union.”

But Obama told NBC that he has cut more than $1 trillion in spending and offered another $1 trillion-plus in additional cuts “so that we would have $2 of spending cuts for every $1 of increased revenue.” He said the majority of Americans have made clear they support his calls for “a balanced approach” that would increase taxes on the wealthy.

Former Democratic Party chairman and 2004 presidential contender Howard Dean told ABC that heading over the cliff would not be so bad, calling it a “fiscal curb” instead.

“You go back to the Clinton tax rates, and you make some significant cuts. And you cut the Defense Department, which hasn’t been cut in 30 years,” said Dean, a former Vermont governor. Meanwhile, going over the cliff gives Obama more leverage, “because then all of sudden, middle-class people’s taxes are going to rise, and that’s going to be bad for every politician in Washington.”

“Maybe they’ll actually get something done,” he said. “But I think, at this point, at this late hour, I think almost any deal they come up with is worse than going over the cliff.”

But Sen. Olympia Snowe, R-Maine, told CNN’s “State of the Union” that she expects Congress will vote to extend tax cuts for incomes below $250,000 — perhaps below $400,000 — before midnight Monday. A Senate agreement “would build momentum” for the move in the House, she said.

“I think it would be horrific for the country if at this time, the final days of this legislative session that already has reached historic proportions of failure, that we would now culminate in failure to extend these tax cuts,” said Snowe, who is on her way out of office.

 

By Matt Smith

CNN’s Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

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GALT–

What if we lived in a world where just one gallon of milk cost $8 dollars?

“We would cause a lot of volatility. Nobody would know for sure what’s going on,” says Case VanSteyn, a dairy farmer out of Galt who has been in the business for 50 years.

“We would cause extreme hardships on a lot of people because consumers can’t afford that much.”

But, that price might be the new reality. Congress has until Monday to pass a bill, renewing support for agriculture programs. If not, the government will revert back to what they did in 1949, and require the Department of Agriculture to buy milk at inflated prices.

But, dairy farmers need the price of milk to go up. Within the last few years, the cost of ingredients to feed cattle has nearly doubled.

Even if we are inching last and closer to the edge of the dairy cliff, VanSteyn must continue. He has 600 acres of land to tend to and 1,000 cows to feed.

WASHINGTON (CNN) — The Senate’s top Democrat and Republican are working this weekend to forge a compromise to prevent the country from going over the fiscal cliff, the combination of sweeping spending cuts and widespread tax increases that will otherwise take effect in days.

Senate Majority Leader Harry Reid, D-Nevada, on late Friday afternoon called the next 24 hours “very important” in the grueling effort to avert a crisis that has been two years in the making. House Speaker John Boehner has called on the Senate to go first, and then his chamber — which reconvenes Sunday — will act.

By mid-day Saturday, Senate aides from both parties reported no major developments in the talks. That may not be a bad sign, as a Democratic aide earlier said his side would probably leak a Republican offer it considers “laughable” but would keep it private if the proposals were reasonable.

The Senate aides said they expect no details will be divulged until Sunday afternoon, when Sen. Mitch McConnell of Kentucky and Reid will update their Republican and Democratic caucuses, respectively. House Republicans will get together sometime early Sunday night, according to a note sent to legislators and staffers.

Early Friday evening after a meeting involving President Obama, congressional leaders and top administration officials, the president said he was “modestly optimistic” the Senate leaders would reach an agreement. At the same time, he conceded, “Nobody’s going to get 100% of what they want.”

The weekend talks are being led by the two senators’ chiefs of staff — David Krone for Reid, and Sharron Soderstrom for McConnell — communicating largely over the phone and by e-mail, aides said. Neither of their bosses is expected to be in the Capitol on Saturday, though that could change.

Staffers for Boehner, the top man in the Republican-led House of Representatives, won’t directly take part in the negotiations, but they’ll be kept informed by McConnell’s staff, a GOP aide said. Working from the White House, Obama has been in close contact with negotiators, a senior administration official said Saturday.

Democrats believe Republicans should make the “first move” — basically by saying what changes should be made to the president’s proposal, which calls for tax rates to stay the same for all annual family income below $250,000. The expectation is that Republicans will try to raise that income threshold to $400,000 and push to keep estate taxes low; Democrats said they might be open to one such scenario, but not both.

If the two sides don’t agree on a bill over the weekend, Obama said he wants his latest proposal to be put up for a vote in both the Senate and House. He predicted his plan — which, in addition to his tax rate proposal, would extend unemployment benefits and “lay the groundwork” for deficit reduction — would pass in both chambers with bipartisan support.

As members of Congress and their staffs talk, Obama will make his case to the public by appearing Sunday on NBC’s “Meet the Press,” his first appearance on a Sunday political talk show in three years. The appearance follows his weekly radio address, given Saturday, in which he said it was Republicans’ “prerogative” to “let this tax hike hit the middle class,” while Republican Sen. Roy Blunt of Missouri countered by accusing Democrats of spending “months drawing partisan lines in the sand.”

Reid said, at the very least, that he’d prepare legislation that includes elements favored by Obama for a vote by Monday. Still, he insisted he’d first work with his GOP colleagues.

“I look forward to hearing any good-faith proposals Sen. McConnell has for altering this bill,” the Nevada Democrat said.

If no legislation passes both chambers and therefore isn’t signed by the president by year’s end, the fiscal cliff will go into effect — something economists warn could trigger a recession.

The lack of political movement thus far, and lack of confidence Washington politicians can get anything done with so little time left, has spurred consumer confidence to sag and stock market values to sink.

Some, like Democratic Sen. Chuck Schumer of New York, expressed cautious optimism Friday that the looming deadline, and the key players renewed engagement, would spur a deal. But others were less optimistic, with Democratic Rep. Jim Moran of Virginia saying Saturday that “I don’t think we are going to be able to reach a deal, no matter how small it might be.”

Republican Sen. Bob Corker of Tennessee derided the entire process so far as “a total dereliction of duty on every level.”

“I’ve been very surprised that the president has not laid out a very specific plan to deal with this,” he said on CBS “This Morning.”

“But candidly, Congress should have done the same. And I think the American people should be disgusted.”

The principal dispute continues to be over taxes, specifically Democrats’ demand to extend most tax cuts passed under President George W. Bush while allowing higher rates of the 1990s to return on top income brackets. During his re-election campaign, Obama said doing so would protect 98% of Americans and 97% of small businesses from tax hikes.

Republicans have opposed any increase in tax rates, and Boehner suffered the political indignity last week of offering a compromise — a $1 million threshold for the higher rates to kick in — that his GOP colleagues refused to support because it raised taxes and had no chance of passing the Senate.

Obama and Democrats have leverage, based on the president’s re-election last month and Democrats’ gains in the House and Senate in the new Congress. In addition, polls consistently show majority support for Obama’s position on taxes, and Democrats insist the House would pass the president’s plan with Democrats joined by some Republicans if Boehner allowed a vote on it.

However, conservative activist Grover Norquist has vowed to back primary challenges against Republicans who violate his widely signed pledge not to raise taxes. Even if a deal is reached, Norquist has predicted yet more budget showdowns every time the government needs additional money to operate.

The two sides seemingly made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

Boehner appeared to move on increased tax revenue, including higher rates on top income brackets and eliminating deductions and loopholes. But his inability to rally all House Republicans behind his plan raised questions about his role and what comes next.

The saga has fueled disdain for politicians by many Americans. Such contempt is deserved, said Rep. Steven LaTourette, an Ohio Republican, who is retiring from Congress.

“I think America should be embarrassed by its leadership in D.C.,” he told CNN on Friday. “The fact that we have been unable to do things, and instead worried about our next elections. … I think it’s sinful.”

 

By Ted Barrett and Greg Botelho

CNN’s Jessica Yellin, Tom Cohen, Dana Bash, Deirdre Walsh, Lisa Desjardins and Kevin Liptak contributed to this report.

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Obama Speaks

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A political summit on Friday at the White House left it to the Senate’s top Democrat and Republican to work out a possible compromise to avoid the fiscal cliff, participants said.

Senate Majority Leader Harry Reid, D-Nevada, told reporters that the next 24 hours would be “very important” toward efforts to lessen the harshest impacts of the fiscal cliff, a combination of automatic tax hikes and deep spending cuts due to take effect at the start of the new year.

“Whatever we come up with is going to be imperfect. Some people aren’t going to like it, some people are going to like it less,” Reid said on the Senate floor after the meeting with President Barack Obama, other top congressional leaders and senior administration officials.

Reid’s Republican counterpart, Sen. Mitch McConnell of Kentucky, expressed hope that he and Reid could arrive at a proposal to present to their respective caucuses “as early as Sunday.”

Obama declared himself “modestly optimistic” that the Senate leaders can forge an agreement, but he warned that “nobody’s going to get 100% of what they want.”

In a statement to reporters, Obama also said that absent a deal, his latest proposal should be put to a vote, adding that he believed it would pass both the House and Senate with bipartisan support.

Congress has three days to come up with a solution before the end of 2012 brings the tax increases and spending cuts of the fiscal cliff.

Diminished hopes for a substantial agreement in Washington depressed stock indexes on Wall Street this week despite other encouraging news on the economy. Consumer confidence has also softened due to political inaction.

Economists warn that continued stalemate could trigger recession as taxes go up on everyone with the expiration of lower rates from the administration of President George W. Bush, coupled with slashed government spending, including for the military.

The late afternoon White House meeting ran just over an hour and also included House Speaker John Boehner, House Democratic leader Nancy Pelosi, Vice President Joe Biden and Treasury Secretary Timothy Geithner.

Prior to the meeting, a source familiar with the matter said Obama would propose the same framework for a scaled-back agreement that he described last week.

In his later statement, Obama described his plan as holding down tax rates on midde-class Americans — which he describes as family income up to $250,000 — while allowing rates to increase on top income brackets. It also would extend unemployment benefits and “lay the groundwork” for economic growth and deficit reduction.

Friday’s meeting came with the Senate back in town after a Christmas holiday for a rare end-of-year appearance before a new Congress convenes early in the new year. Boehner plans to bring the House back on Sunday.

Earlier in the day, senators from both parties expressed opinions on the negotiations that ranged from optimism to frustration.

“When the dust settles and everything is said and done, federal individual income taxes are not going to go up on almost all Americans next year,” GOP Sen. Lamar Alexander of Tennessee told reporters.

Democratic Sen. Chuck Schumer of New York told NBC’s “Today” show he was “a little more optimistic today” about reaching a deal.

“Sometimes it’s darkest before the dawn,” Schumer said, noting the renewed engagement by McConnell and Boehner, the top congressional Republicans.

“The fact that (Boehner’s) come back and the four of them are at the table means to me we could come up with some kind of agreement that would avoid the main parts of the fiscal cliff, particularly taxes going up on middle-class people,” he added.

Republican Sen. Bob Corker of Tennessee downplayed the importance of Friday’s meeting on CBS “This Morning,” saying it “feels too much to me like optics to make it look like we’re doing something.”

“This is a total dereliction of duty at every level,” added Corker, who has called for Republicans to compromise on the central issue of allowing tax rates to increase on top income brackets.

“I’ve been very surprised that the president has not laid out a very specific plan to deal with this, but candidly Congress could have done the same and I think the American people should be disgusted,” he said.

On Thursday, McConnell vowed that his side would not “write a blank check for anything Senate Democrats put forward just because we find ourselves at the edge of the cliff.”

Reid, however, argued that Republicans undermined a potentially major agreement over the past two years by refusing to compromise on their opposition to higher tax rates for the wealthy.

The principal dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under Bush while allowing higher rates of the 1990s to return on top income brackets.

Obama campaigned for re-election on keeping the current lower tax rates on family income up to $250,000, which he argues would protect 98% of Americans and 97% of small businesses from rates that increase on income above that level.

Republicans oppose any kind of increase in tax rates, and Boehner suffered the political indignity last week of offering a compromise — a $1 million threshold for the higher rates to kick in — that his GOP colleagues refused to support because it raised taxes and had no chance of passing the Senate.

Last Friday, the president proposed the scaled-back agreement that included his call for extending tax cuts on households with incomes up to $250,000, as well as an extension of unemployment insurance.

Reid and Democrats reject the GOP proposals, which would extend all the Bush tax cuts and revamp the spending cuts of the fiscal cliff, calling them insufficient and saying they would shift too much deficit reduction burden on the middle class.

One possibility is the fiscal cliff takes effect and taxes go up in January, then Congress steps in to bring tax rates back down for at least some people — allowing them to say they’re lowering taxes, even if rates for top income brackets are higher in 2013 than they were in 2012.

Obama and Democrats have leverage, based on the president’s re-election last month and Democratic gains in the House and Senate in the new Congress. In addition, polls consistently show majority support for Obama’s position on taxes, and Democrats insist the House would pass the president’s plan with Democrats joined by some Republicans if Boehner allowed a vote on it.

However, anti-tax crusader Grover Norquist has vowed to back primary challenges against Republicans who violate his widely signed pledge not to raise taxes. Even if a deal is reached, Norquist predicts budget showdowns will continue every time the government needs more money to operate.

“There the Republicans have a lot of clout because they can say we’ll let you run the government for the next month, but you’ve got to make these reforms,” he said this week.

On Wednesday, Treasury Secretary Timothy Geithner told Congress the government would reach its borrowing limit at year’s end, but could take steps to create what he called “headroom” for two months or so.

However, Geithner said uncertainty about the fiscal cliff and deficit negotiations make it hard to predict precisely how long government measures to address the situation will last.

The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.

Now, legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as changes to government programs like Social Security, Medicare and Medicaid.

The two sides seemingly had made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

Obama’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also had a new formula for the consumer price index — called chained CPI — that wraps in new assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI. Liberal groups have openly challenged the plan, calling it a betrayal of senior citizens who contributed all their lives for their benefits.

Boehner appeared to move on increased tax revenue, including higher rates on top income brackets and eliminating deductions and loopholes. But his inability to rally all House Republicans behind his plan last week raised questions about his role and what comes next.

CNN’s Jessica Yellin, Tom Cohen, Dana Bash, Deirdre Walsh, Ted Barrett and Kevin Liptak contributed to this report.

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StockExchange

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NEW YORK CITY (CNN)-

Stocks closed lower for the fifth straight day Friday, ending the week down nearly 2%, as investors continue to fear the impact of falling over the fiscal cliff.

The S&P 500, the Dow, and the Nasdaq ended the day down between 0.9% and 1.2%. The Dow suffered its steepest loss since Nov. 14.

The selling gained steam in the last few minutes of trading after reports that President Obama wasn’t making a new offer during a meeting with congressional leaders at the White House Friday afternoon. Obama had been expected to propose a scaled-back fiscal cliff deal during the meeting.

During the past several days, rumors about both progress and setbacks have caused wild swings in the stock market. Until the last few minutes of trading, Friday’s sell-off had been less volatile. Trading volume has been particularly light this week, causing more dramatic moves as news leaked out.

The House of Representatives will be in session Sunday to give its members time to attempt to hammer out a deal.

As hopes for a substantial budget agreement have diminished, all three indexes are on track to end December in the red.

Still, despite recent pressure, stocks have had a pretty stellar year, with all three indexes up between 6% and 14%.

Investors are hoping that leaders will at least be able to reach a breakthrough that will postpone at least some of the automatic tax hikes and spending cuts due to take effect on Jan. 1. Failure to reach a deal could potentially push the U.S. economy into a recession.

Investors shrugged off two better-than-expected economic reports Friday morning. Readings on both the Chicago purchasing managers index and pending home sales for December rose more than expected.

Shares of Hewlett-Packard fell after the company announced that the Department of Justice is investigating possible accounting fraud at Autonomy. After acquiring Autonomy for $11 billion last year, HP took an $8.8 billion writedown related to the acquisition this year.

Shares of Barnes & Noble rose 6% after British publisher Pearson announced that it would invest $90 million for a 5% stake in the retailer’s Nook unit.

European markets closed lower. Italy passed its first test of investors’ interest since prime minister Mario Monti resigned earlier this month, successfully selling €3 billion in 10-year government bonds Friday.

Asian markets ended stronger. In Japan, which will be closed on Monday, the Nikkei ended the year up more than 20%. The index’s recent strong run comes as the yen has been weakening on the prospect of further monetary easing. The Shanghai Composite posted further gains and is poised to end the year in the black.

The U.S. dollar rose against the euro, but dropped against the British pound and the Japanese yen.

The yield on the 10-year Treasury note stayed steady at 1.70%. Oil and gold prices were modestly lower.

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Stocks Take a TumbleWASHINGTON (CNN)-

White House officials said Thursday that President Barack Obama will not send a fiscal cliff measure to Capitol Hill, while Republicans insisted they were expecting more details on the president’s proposal.

An aide to Senate GOP leader Mitch McConnell (R-Kentucky) said the senator expected further details soon on what Obama and Democrats were proposing.

A Senate Democratic leadership member also said that more details would be provided. Both sources spoke to CNN on condition of not being identified further.

However, two White House officials, speaking on condition of anonymity, said the president was not sending a proposal to Congress.

Such parsing of words and interpretations showed the high political sensitivity over how the fiscal cliff negotiations are being portrayed to the public.

It was not immediately clear whether the confusion represented a misinterpretation of outreach or discussions between Obama and Senate Republicans.

McConnell has called for the president or Senate Democrats to make the first move in the political standoff over how to prevent or soften automatic tax hikes and spending cuts of the fiscal cliff set to take effect in the new year — just five days away.

Economists warn the full impact of the fiscal cliff could spark another recession. In signs of the potential effect, stocks were lower Thursday on increasing doubts about an agreement, and the Consumer Confidence Index sank.

Last week, Obama called for a scaled-back plan that would prevent tax increases on middle-class Americans and extend unemployment benefits.

McConnell told Obama in a telephone conversation Wednesday that he must see details of a proposal before he can figure out any process for a Senate vote.

However, a senior Democratic Senate source told CNN on Thursday that it was McConnell who must first work things out with House Speaker John Boehner on how legislation will proceed before Democrats provide more details of their plan.

Hopes for a so-called grand bargain that would address the nation’s chronic federal deficits and debt appeared dashed for now, leaving it to the White House and legislators to work out a less ambitious agreement.

The principal dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under President George W. Bush while allowing higher rates of the 1990s to return on top income brackets.

Obama campaigned for reelection on keeping the current lower tax rates on family income up to $250,000, which he argues would protect 98% of Americans and 97% of small businesses from rates that increase on income above that level.

Republicans oppose any kind of increase in tax rates, and Boehner suffered the political indignity last week of offering a compromise — a $1 million threshold for the higher rates to kick in — that his colleagues refused to support because it raised taxes and had no chance of passing the Senate.

Last Friday, Obama proposed a scaled-back agreement that included his call for extending tax cuts on households with incomes under $250,000, as well as an extension of unemployment insurance.

After a Christmas holiday, Obama returned to Washington from Hawaii and the U.S. Senate reconvened Thursday as the fiscal cliff deadline approached. On the House side, leaders announced the chamber would reconvene on Sunday and could stay in session through January 2, before a new Congress gets sworn in on January 3.

With House Republicans unable to resolve the impasse, the focus shifted to the Democratic majority in the Senate to come up with a way forward that could pass the House and get signed into law by Obama.

In the Senate, Majority Leader Harry Reid of Nevada expressed doubt Thursday that enough time remained to reach an agreement, especially with the House at more than 48 hours from coming back.

“I don’t know, time-wise, how it can happen now,” he said as he opened the Senate’s first session back from the holiday.

The White House said Obama spoke with all four congressional leaders before leaving Hawaii on Wednesday. Spokesmen for Republican leaders of the House and Senate made clear, though, that the president or Senate Democrats needed to offer a proposal to start further negotiations.

Possible scenarios include a short-term deal now, setting up continued negotiations next year when Obama and a new Congress that convenes in January confront a need to raise the federal debt ceiling and approve further spending to keep the government funded.

Another possibility would be a short-term deal reached after January 1 that would change the political calculus by having legislators vote for cutting the higher tax rates from the fiscal cliff — a much more palatable exercise than the current debate over allowing top rates to increase.

Retiring Republican Rep. Steve LaTourette of Ohio told CNN on Thursday that such an outcome would be entirely due to politics.

“Nobody is willing to pull the trigger” on an agreement because “everybody wants to play the blame game,” he said. “This blame game is about to put us over the edge.”

Reid lambasted Boehner in his remarks Thursday, saying the speaker wanted to wait until after the new House chooses him as speaker on January 3 before proceeding with a compromise that would pass the chamber today.

Boehner was “more concerned about his speakership than putting the country on firm financial footing,” Reid charged.

In response, Boehner’s spokesman said Reid should stop talking and instead take up legislation passed by the House that would avert the fiscal cliff.

“The House has already passed legislation to avoid the entire fiscal cliff. Senate Democrats have not,” said the spokesman, Michael Steel.

Reid and Democrats reject the GOP proposals, which would extend all the Bush tax cuts and revamp the spending cuts of the fiscal cliff, as insufficient steps that would shift too much of the burden of deficit reduction on the middle class.

Instead, Reid called on Boehner to allow a vote on a Senate-passed measure that would implement Obama’s plan to extend tax cuts to the $250,000 threshold.

Rep. Nan Hayworth, R-New York, acknowledged Wednesday that a deal will have to include some form of higher rates on top income brackets, but she said her party would fight to make it as minimal as possible.

Hayworth also made clear to CNN that a limited agreement was the most to expect for now, saying: “I don’t think we’re going to get the big plan in the next six days.”

A statement Wednesday by Boehner’s leadership team said the Senate must act first on proposals already passed by the House but rejected by Senate leaders and Obama.

“If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House,” the leadership statement said. “Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments. The House will take this action on whatever the Senate can pass, but the Senate first must act.”

Obama and Democrats have leverage, based on the president’s reelection last month and Democratic gains in the House and Senate in the new Congress. In addition, polls consistently show majority support for Obama’s position on taxes.

The Gallup daily tracking poll released Wednesday showed 54% of respondents support Obama’s handling of the fiscal cliff negotiations, compared with 26% who approve of Boehner’s performance.

A senior Senate Democratic source told CNN on Wednesday that Reid has made clear in private conversations that he will need assurance that any plan can pass both the Senate and the House before he will bring it up.

“It is to nobody’s advantage to have a failed Senate vote at this point,” the source said on condition of not being identified. “This will be the last train we will have, and there is no sense in it leaving the station before we have assurance it will get through.”

Remaining questions include whether enough Republicans will support a compromise acceptable to Democrats, and whether McConnell and Senate Republicans will allow a simple majority vote to take up and pass any proposal, or stick to the filibuster level of 60%.

“We believe very strongly a reasonable package can get majorities in both houses,” a senior White House official said. “The only thing that would prevent it is if Senator McConnell and Speaker Boehner don’t cooperate.”

Some Senate Democrats have discussed holding off on bringing up a proposal until the final days of 2012 to increase pressure on Republicans to support avoiding higher taxes on everyone due to the fiscal cliff

While the focus now is on a possible agreement in coming days or weeks, anti-tax crusader Grover Norquist told CNN this week that the nation should gird for long-range battle.

“It’s four years of a fight. It’s not one week of a fight,” said Norquist, who has threatened to mount primary challenges against Republicans who violate a pledge they signed at his behest against ever voting for a tax increase.

He predicted “a regular fight” when Congress needs to authorize more government spending and raise the federal debt ceiling in coming months.

“There the Republicans have a lot of clout because they can say we’ll let you run the government for the next month, but you’ve got to make these reforms,” he said.

On Wednesday, Treasury Secretary Timothy Geithner informed Congress that the government would reach its borrowing limit at the end of the year — in five days’ time — but could take steps to create what he called “headroom” for two months or so.

However, Geithner said uncertainty about the fiscal cliff negotiations and possible changes to the deficit situation made it difficult to predict precisely how long the government’s steps to ease the situation would last.

The GOP opposition to any kind of tax rate increase has stalled deficit negotiations for two years and led to unusual political drama, such as McConnell recently filibustering a proposal he introduced and last week’s rebuff by House Republicans of the alternative tax plan pushed by Boehner, their leader.

Reid and other Senate Democrats say House Republicans must accept that an agreement will require support from legislators in both parties, rather than a GOP majority in the House pushing through a measure on its own.

He insisted that a Senate-passed plan with Obama’s $250,000 threshold would pass the House if Boehner would allow a vote. However, the Senate proposal is held up on constitutional grounds, because legislation that increases revenue must originate in the House.

Some House Republicans have said they would join Democrats in supporting the president’s proposal in hopes of moving past the volatile issue to focus on the spending cuts and entitlement reforms they seek.

The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.

Now, legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as reforms to popular entitlement programs such as Social Security, Medicare and Medicaid.

The two sides seemingly had made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

Obama’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also included a new formula for the consumer price index applied to some entitlement benefits, much to the chagrin of liberals.

Called chained CPI, the new formula includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

Liberal groups sought to mount a pressure campaign against including the chained CPI after news emerged this week that Obama was willing to include it, calling the plan a betrayal of senior citizens who had contributed throughout their lives for their benefits.

For his part, Boehner conceded on increased tax revenue, including higher rates on top income brackets and eliminating some deductions and loopholes.

CNN Staff filed this report.

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Starbucks CEO talks with CNN

Howard Schultz, CEO, Starbucks talks with CNN’s Poppy Harlow on December 5, 2012.

NEW YORK (CNNMoney) — Starbucks is launching a political campaign this week it hopes will get the attention of Washington policymakers who have been unable to reach a deal to avert the fiscal cliff.

In a letter to Starbucks employees made public on Wednesday, Chief Executive Howard Schultz asked employees at its approximately 120 D.C.-area stores to write “Come Together” on coffee cups when serving customers on Thursday and Friday.

“Rather than be bystanders, you and your customers have an opportunity — and I believe we all have a responsibility — to send our elected officials a respectful but potent message, urging them to come together to find common ground,” Schultz wrote.

Last week, Congress and President Obama broke for the Christmas holiday still far apart on a plan to address widespread tax increases and automatic government spending cuts starting next week. Both sides are due back by Thursday and have vowed to make a final attempt.

Schultz told CNN earlier this month that he believed the failure to reach a deal has created uncertainty among consumers and businesses and risks hurting the economy. “This single issue has a seismic effect on the rest of the world,” he said.

The Congressional Budget Office has said the fiscal cliff could lead to another U.S. recession. And policymakers and investors around the world have raised concerns about its impact on the global economy.

Starbucks plans to buy ads in the Washington Post and New York Times later in the week as part of its “Come Together” campaign.

In his letter to Starbucks employees, Schultz cites the Fix the Debt group, which has been lobbying for a deal that would avoid the fiscal cliff and put the country on a path toward a sustainable federal budget.

Fix the Debt, which has drawn the vocal participation of some high-profile CEOs, has been criticized by some on the left who say it overstates the risks of the fiscal cliff.

The spokesman added that Schultz’s request to write “Come Together” on coffee cups is voluntary and that employees are not required to participate if it makes them “uncomfortable.”

This is not the first time Schultz has called out Washington over political gridlock. Last year, after the debt ceiling fiasco led to the downgrade of the U.S. credit rating, he said he would stop giving political donations and called on other CEOs to join him.

 

 

By Poppy Harlow and Rich Barbieri

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Obama Speaks at Newtown Interfaith ServiceHAWAII (CNN) -

President Barack Obama might end his Hawaiian vacation Wednesday to make a late-hour bid to reach a fiscal cliff deal before the year ends.

“We are likely to leave as soon as tomorrow,” a White House official said Tuesday.

House and Senate members are expected to reconvene Thursday.

Obama and Republicans have been at loggerheads over how to prevent automatic tax increases for everyone and deep spending cuts that will be triggered in the new year without an agreement.

With neither side showing any sign of blinking, the battlefield will probably shift to the Senate this week after GOP disarray in the House stymied any progress before Christmas.

According to multiple Democratic and Republican sources, no weekend conversations occurred between the White House and Senate leaders from either party or their aides.

The main dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under President George W. Bush while allowing higher rates of the 1990s to return on top income brackets.

Republicans oppose any kind of increase in tax rates, and House Speaker John Boehner suffered the political indignity last week of offering a compromise that his colleagues refused to support.

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