Congress returns to work in Washington this week with a to-do list worthy of an overworked single mom, but the issue likely to get the most attention is the so-called "fiscal cliff." As the issue encompasses the entire federal budget and much of the tax code, the outcome of the negotiations will impact most Americans.
With just over a month until the New Year, when the policies constituting the fiscal cliff are scheduled to go into effect, negotiations between President Obama and Congress resume this week and the political jockeying continued in earnest.
In a report released this morning, the White House is predicting economic strain if tax cuts for middle-class families aren't extended. The report by the Council of Economic Advisers and the National Economic Council says taxes on middle-class families will go up $2,200 per year if current tax rates expire and that $200 billion of consumer spending would be lost. In a direct challenge to Republicans who are calling for holding off on raising tax rates for the nation's wealthiest, the White House adds, "There is no reason to hold the middle class hostage while we debate tax cuts for the highest income earners."
On Sunday, Sen. Lindsey Graham, R.-S.C., joined a chorus of Republicans - led by House Speaker John Boehner before Thanksgiving - indicating that he is willing to allow the federal government to take in more tax revenue by limiting some tax deductions and loopholes. He drew the line, however, like most other Republicans, at raising tax rates.
"Republicans should put revenue on the table. We're this far in debt. We don't generate enough revenue. Capping deductions will help generate revenue. Raising tax rates will hurt job creation," Graham said.
Meanwhile, Sen. Richard Durbin, D-Ill., repeated the position of many Democrats who say the wealthy should pay a higher tax rate. "Let the rates go up to 39 [percent]. Let us also take a look at the deductions. Let's make sure that revenue is an integral part of deficit reduction," said Durbin. The current tax rate for the wealthiest Americans was lowered during the Bush administration to 35 percent. Tax rates for the wealthy - and all Americans - are set to increase January 1 if Congress doesn't act.
But taxes are not the only elephant in the room in regard to the "fiscal cliff": it also includes $1.2 trillion (over 10 years) in automatic cuts to domestic and defense spending that would impact every government program except for Social Security, Medicaid and most of Medicare. Both sides agree that federal spending can be reduced, but the debate over the specifics of what to cut promises to be just as difficult of a negotiation as taxes.
Even though the retirement and health care programs for the poor and retired are not part of the "fiscal cliff," it has become a major part of the discussion as they consume more than one-third of the federal budget - and their share of the budget pie is on the rise.
"I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform," Graham said Sunday, referring to anti-tax advocate Grover Norquist's pledge that many Republicans have signed vowing not to raise taxes.
As Graham pointed out, many Democrats are skeptical about changes to entitlements, distrusting of Republicans who they think want to dismantle the programs. Durbin, meanwhile, said Sunday that he is open to some changes to Medicare and Medicaid that prolong the programs but that Social Security should not be part of the discussion.
"Social Security - set [it] aside. It doesn't add to the deficit," he said. Social Security is viable for another 21 years before retirees would see a reduction in benefits.
Thus the major battle lines are drawn in the "fiscal cliff" debate. And outside groups are working very hard to ensure those battle lines are not crossed.
Labor unions have launched a massive lobbying campaign to press their messages. Union leaders from around the country are traveling to Washington this week to meet with lawmakers on both sides of the aisle.
AFL-CIO spokesperson Jeff Hauser says they have two messages: "Not a single day more of the Bush tax cuts for the two percent" and protect Social Security, Medicare and Medicaid. And a coalition of other unions - the American Federation of State, County and Municipal Employees, the Service Employees International Union and the National Education Association have launched TV ads to put pressure on members of Congress to raise taxes on the wealthy and keep entitlements off the table.