WASHINGTON (Reuters) - The U.S. Capitol is nearly empty, President Barack Obama is spending most of his time away from the White House in a final push for re-election and top American CEOs are getting nervous.
Unlike the typical election year, however, Congress faces a December 31 deadline for coming up with some sort of substitute for the dreaded “fiscal cliff” - about $500 billion worth of tax increases and $109 billion in government spending cuts due to start on January 2.
While Washington is suddenly filled with big ideas to avert the calamity, congressional insiders are warning that they may all be out of reach.
Just weeks before the November 6 U.S. election, after which Congress has only a few weeks to act, these insiders speak only of small temporary fixes, still undefined.
The hope of just a month ago that the election result might produce a larger solution is fading, giving way to ever-greater uncertainty, which business leaders fear could do considerable economic damage by itself, before any formal deadline arrives.
“I just think it’s terrible policy to allow it to get close,” Jamie Dimon, the chief executive of JPMorgan Chase & Co, told the Council on Foreign Relations think tank on Wednesday.
“It won’t happen at midnight, December 31,” Dimon said. “It’s going to happen now and right after the election when people start to say, ‘This is bad,’ and they just start to make decisions at the margin. Don’t hire. Don’t build. Don’t buy. Let’s just wait and see. Well, that is a recession.”
His fellow Wall Street CEO, Goldman Sach’s Lloyd Blankfein, expressed similar sentiments on CNBC on Thursday.
‘IT WILL BE AWFUL’
“To the people who are most aware of the consequences, namely people like ourselves who are advisers to companies who have to live in the economy, we sure know what the consequence will be - and it will be awful,” Blankfein said.
A very small fix that is little more than a delay has always been a strong possibility. But it is now increasingly discussed as inevitable.
That is partly because voters appear ready to elect a 2013-2014 Congress that could look much like the highly partisan and deeply unpopular 2011-2012 one.
And that could add up to more stalemate during the “lame-duck” session of Congress starting November 13, filled with scores of retiring or defeated members who will not be around when the new Congress is seated in January.
There also is a feeling that Congress is not engaged, at least not yet.
“There are no ongoing negotiations,” said Representative Chris Van Hollen, the senior Democrat on the House of Representatives Budget Committee and a member of his party’s leadership.
In a telephone interview, Van Hollen added, “I think a lot of people are looking at different options” but they await the results of the presidential and congressional elections before really engaging with each other on a deal.
Republican Senator John McCain, who lost his 2008 presidential bid to Obama, told CNBC on Tuesday that, at best, a delay in many fiscal cliff decisions could be the major accomplishment in the waning days of this Congress.
“But isn’t that a damning indictment of the Congress and the presidency, that we just kick the can down the road for three, six months?” McCain asked.
There is a fundamental disagreement contributing to the deadlock over deficit reduction. Democrats want a combination of spending cuts and tax increases. Republicans have been adamantly against any tax hikes. The House is controlled by Republicans and the Senate by Obama’s fellow Democrats.
A bipartisan group of senators called the “Gang of Eight” has been huddling in private to try to come up with a “sweet spot” in deficit reductions that could pass in Congress.
The effort is viewed skeptically by many in Congress in part because such attempts have a history of failure. Democratic Senator Charles Schumer, in a speech on Thursday, praised the “gang’s” work as “well-intentioned.”
In any case, a source close to the Gang of Eight said, “No decisions are expected before the election.”
‘THEY’RE DOING NOTHING’
“In Washington, they’re doing nothing, nothing about it,” said Erskine Bowles, who joined Blankfein and former Senator Alan Simpson in the CNBC interview on Thursday.
Bowles and Simpson were co-chairmen of a presidential commission that offered a comprehensive deficit-reduction plan in 2010, but there was insufficient support in Congress for the proposal and Obama never enthusiastically pushed it.
Corporate CEOs and the Business Roundtable that represents many of them, along with non-partisan advocacy groups devoted to fiscal policy, are taking a high-profile role. They are urging Congress to get serious about the U.S. budgets fueling a national debt that recently raced past the $16 trillion mark.
Some high-profile members of Congress are busy laying down markers. In a speech on Tuesday, Schumer, the Senate’s third-ranking Democrat, dismissed the Republican push for tax cuts for the rich as an “obsolete” template.
Schumer’s initiative was a warning to Republicans that they will likely hear repeated by other Democrats after November 6 as lawmakers stake out positions.
Senate Republican leader Mitch McConnell on Tuesday warned that any substitute for the $109 billion in automatic cuts should not have “a penny less” in savings.
Plenty of conservatives and liberals in the Senate have been floating smaller ideas: a $20 billion “down payment,” a $60 billion “good faith effort,” or various other short-term remedies. These lawmakers are basically pleading for a few more months to find the bigger compromise that has eluded them.
Some smaller steps are more likely than others during the lame-duck session, such as the renewal of expired “tax extenders” worth around $30 billion, including a business research and development credit.
A fix for the Alternative Minimum Tax - a proposal known as the “AMT patch” - also is likely to be achieved by year’s end, according to congressional aides.
The Alternative Minimum Tax is essentially a parallel tax system meant to ensure that the wealthy do not use deductions, tax shelters and other loopholes to reduce their tax liability to zero. It was put in place in 1969 but never indexed for inflation, so every year it threatens to ensnare more and more middle-class families.
The proposed fix would prevent about 34 million taxpayers from creeping into a higher Alternative Minimum Tax bracket.
Another relatively minor cost-saving idea that congressional aides and lobbyists said was being resurrected from last year’s failed budget negotiations is shifting to a slower-growing calculation for the Consumer Price Index, or CPI. That would be one way of trimming back benefits under the Medicare health insurance program for the elderly and disabled.
“Most everything else gets kicked down the road,” said Greg Valliere of the Potomac Research Group, a private firm that tracks Washington for large investors.
House Speaker John Boehner said as much in an interview with the Politico newspaper this week. It is too difficult, he said, to do a major deficit-reduction package in the few weeks between November 6 and Christmas, when lawmakers want to wrap up for the year.
Boehner also questioned whether the current Congress - populated by outgoing members - should be making such crucial decisions on spending and taxes. That, he said, is “probably not the appropriate way to handle the lame-duck” session.
Additional reporting by Kim Dixon, David Morgan, Mark Felsenthal, Thomas Ferraro and David Lawder; Editing by Fred Barbash and Will Dunham
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