End of Congress as we know it with no cliff deal

DESPITE intense scrutiny and the growing frustration of the American public, the US Congress failed to come up with a weekend deal to avoid the sweeping tax rises and spending cuts known as the fiscal cliff.

DESPITE intense scrutiny and the growing frustration of the American public, the US Congress failed to come up with a weekend deal to avoid the sweeping tax rises and spending cuts known as the fiscal cliff.

The 112th Congress, which is set to become the least productive since the 1940s, now has just a day to find a solution, suggesting that anything it comes up with will be a bare-minimum patch over key elements rather than the "grand-bargain" hoped for, and that the crisis will lurch on through the northern winter.

The members of the 112th Congress, which sits for the last time on Monday in the US, have not only created the fiscal cliff they are now seeking to avert, but they have failed to pass a budget, failed to pass basic procedural motions, failed to pass a violence against women act and most recently failed to ratify a UN treaty protecting the rights of the disabled.

Meanwhile, Congress' lower house has voted to repeal Obamacare more than 30 times, despite the fact the measure would never pass the Senate, let alone be signed into law by the President.

Republican moderate Senator Olympia Snow, who announced her retirement earlier this year in protest, said on Sunday it was a "tragedy" that Congress had failed to work together on routine matters, let alone reach the body's potential to serve America. Congress' approval rating now sits at 18 per cent.

On Saturday night, Republicans proposed a deal that would have included a reduction in some social security payments. Democrats declared the measure a "poison pill" and talks collapsed until Sunday, after Republican Minority Leader Mitch McConnell appeared on the Senate floor and appealed to Vice-President Joe Biden to help jump-start negotiations.

Republicans later pulled the measure from their demands and talks resumed.

By Sunday night, it seemed that the key matter for negotiations was at what level income to allow the Bush-era tax cuts to expire. Democrats have been calling for effective tax rises to begin on income earned over $US250,000.

Having won an election in which the President campaigned on increasing taxes on the wealthy rather than cutting benefits to the elderly and poor, many congressional Democrats, as well as Mr Obama himself, are unwilling to give ground on spending cuts.

For that reason any last-minute deal that could pass a vote in the Senate is likely to include a measure that maintains the Bush-era tax cuts for all but the wealthiest Americans.

It is not known whether Republicans in the lower house would pass such a measure. Last week, Republican Majority Leader John Boehner had to pull a vote over his own proposal to protect all but those earning more than $US1 million because he could not guarantee support from his own members.

American businesses and individuals are now left not knowing what taxes they will be paying next week.

Should no deal be made, all the Bush tax cuts enacted in 2001 will expire, as well as those of the 2009 stimulus package and pay-roll tax cuts.

Should the tax cuts expire, it is likely that when the new Congress sits on January 3 Democrats will simply introduce a bill to cut taxes for all but the top 2 per cent of earners.

Speaking on NBC's Meet the Press program for the first time since the height of the negotiations over Obamacare, the President took a tough stance, saying he had negotiated in good faith but it seemed the Republicans were more concerned to protect high-income earners than cut the deficit.

"They say that their 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."

"Americans elected President Obama to lead, not cast blame," responded Mr Boehner. "The President's comments today are ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party."

What if there is no deal?

Deep spending cuts come into force, including to defence industries.

Government suppliers and contractors would lose business.

Public servants may be laid off temporarily.

Taxes and automatic pay deductions would increase for most Americans.

Taxes on capital gains and dividends would rise, hitting investors.

Combined measures would slice last year's $US1.1 trillion deficit by almost $US500 billion.

But the shock treatment would send the country back to recession and push the unemployment rate to 9.1 per cent.


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