Talks intensified Friday as congressional leaders and President Obama worked to avert a combination of tax hikes and budget cuts scheduled to go into effect Tuesday that economists fear could send the economy into recession.
Amid harsh words Thursday from Senate Majority Leader Harry Reid, D-Nev., and House Speaker John A. Boehner, R-Ohio, Boehner said he would call the House back into session Sunday night. The Senate is already in session.
At the same time, Senate Minority Leader Mitch McConnell, R-Ky. for the first time was engaged directly in talks with the White House. The Washington Post said that "signaled an interest in cutting a deal."
This apparently marks just the fifth time since the 1930s that members of Congress have been called into a post-Christmas session.
Washington Analysis analyst Joe Lieber cautioned that, in the unlikely event that a deal is reached over the next couple of days, "it will be narrow in scope, and will likely lead to considerable fiscal drag in 2013 (perhaps as high as 2.0 percent to 2.6 percent of GDP)."
In addition, he said he would not expect a debt limit extension to be included in any deal, "meaning that Congress will be facing the issue once again in February, as well as the need for new legislation to fund the federal government near the end of March, when the current funding measure expires.
"Consequently, any stock market relief as a result of a fiscal cliff deal could very well be short-lived as investors shift their focus to the uncertainty ahead," Lieber said.
CCH, a Wolters Kluwer business and global provider of tax, accounting and audit information, software and services, said that if no agreement is reached and the Bush-era tax cuts fully expire it would increase taxes across the board based on income, and would make an estimated 20 million additional families subject to the alternative minimum tax, raise the capital gains rate and tax dividends as ordinary income.
Moreover, the estate tax would revert to 2001 levels, a $1 million per person exemption and a 55 percent maximum rate.
Currently, the per-person exemption is $5.12 million, with a 35 percent maximum estate tax. And, the estate and gift taxes are combined, a provision that tax practitioners say allows families to buy insurance that could exempt up to $100 million in assets.
According to LOMA, if Congress fails to act, 14.7 million U.S. households would have a potential estate tax liability. (For an example of how the current Democratic and Republican proposals would affect a married couple filing jointly with $150,000 in taxable income, $2,500 in capital gains and $500 in dividends, see chart at right.)
