WASHINGTON (Reuters) - Mark Warner, a Democratic senator who had a seat at the negotiating table for past failed attempts at a deficit reduction deal, says this time will be different.
In an interview with Reuters, Warner said he was optimistic Congress would reach a deal to avert the “fiscal cliff” of tax hikes and spending cuts due to be triggered in January and also commit to a longer-term framework to get the U.S. debt under control.
“We’ve seen this movie before,” the senator from Virginia, who has been mentioned as a possible White House candidate in 2016, said on Tuesday. “Why is this ending going to be different?”
Warner, who sits on the Senate Budget Committee and belongs to the “Gang of Eight” bipartisan group of senators working to develop a deficit reduction plan, laid out three reasons.
One is that Congress will not want to repeat the dismal failure of the last two attempts at a deal, in last year’s debt limit fight and supercommittee talks. Those failures set up the current showdown.
Two: the business community has come out in full force advocating a balanced deal that will give lawmakers some political cover for making sacrifices to meet in the middle on tax increases and entitlement spending cuts.
Three: “The consequences are so dire of getting this wrong,” Warner said.
Going over the fiscal cliff would mean 600 billion worth of tax increases and spending cuts starting on January 2, a move that could be disastrous for a still tenuous recovery.
Not taking action to bring the $16 trillion U.S. national debt under control also risks a European-style financial crisis and austerity measures.
Warner’s confidence a deal will be struck echoes the heartening noises coming from the White House and congressional leaders - a sentiment that soothed jittery markets on Friday and Monday.
President Barack Obama and congressional Democrats want Bush-era tax cuts to expire on the wealthiest 2 percent of Americans. Republicans oppose raising income-tax rates, but have proposed raising some revenues through tax reform measures. They also want cuts to “entitlement” programs such as the Medicare healthcare program for the elderly.
Warner says there is a recognition that finding a middle ground will pay huge dividends for growth and cement U.S. economic pre-eminence in the world.
“There is such a positive upside to getting this right.” Warner said. “Frankly, getting this right will have more significance for job creation than anything that the president or Governor (Mitt) Romney talked about on a specific programmatic basis during the campaign.”
Federal Reserve Chairman Ben Bernanke also spoke on Tuesday about the huge upside of a deal that avoids the fiscal cliff and lays the groundwork for a longer-term deficit-reduction plan.
“Cooperation and creativity to deliver fiscal clarity - in particular, a plan for resolving the nation’s long-term budget issues without harming the recovery - could help make the new year a very good one for the American economy,” Bernanke told the Economic Club of New York.
Conversely, Bernanke warned that the Fed lacked the tools to be able to compensate for a failure by Obama and Congress to avoid the fiscal cliff.
Warner, with two years to go in his first Senate term, announced on Tuesday he would not heed calls for him to run again for Virginia governor in 2013, a post he held from 2002 to 2006.
Warner cited the fiscal cliff as top among the unfinished work he has in the Senate, along with immigration reform, education improvements and a revamp of energy policy.
He described himself as obsessed with putting the United States on a sustainable fiscal path.
Warner has spent the better part of the past year working with the Gang of Eight to craft a potential framework that would lead to some $4 trillion in deficit reduction.
For now, however, Warner said he was watching intently from the sidelines as Obama, House of Representatives Speaker John Boehner, Senate Majority Leader Harry Reid and other congressional leaders start negotiations.
“The notion of less cooks in the kitchen may be worthwhile,” he said.
But he is ready to add the Gang of Eight’s “work product” into the mix of proposals at an appropriate time.
Like many in Congress, he envisions a short-term deal to blunt the impact of automatic spending cuts, coupled with a commitment to shrink deficits through tax reforms and entitlement cuts next year.
“Everybody acknowledges that you’re not going to rewrite the tax code in the 12 legislative days left. You’ve got to make enough of a down payment to pass the market smell test.”
Returning the top two tax rates to their levels during the Clinton administration is the “cleanest” way to get needed revenue, which may actually help tax reform efforts next year that would reduce rates and eliminate credits and deductions, he said.
Warner, a successful telecoms investor and entrepreneur, said he also believed that taxes on capital gains should go up, but should still be about 10 percentage points lower than the top rate for regular income, compared with the current 20-point gap.
Additional reporting By Richard Cowan; Editing by Karey Wutkowski and Peter Cooney