Monday, January 14, 2013

First published on December 21, 2012 via email newsletter 'Fiscal Cliff Notes.'

With the Republican House Conference imploding over Speaker Boehner’s (R-OH) Plan B bill (allow taxes hikes on incomes over $1 million) the likelihood of going over the Fiscal Cliff at year end increases dramatically.
One scenario for averting the Fiscal Cliff before year end requires the Senate to pass a bill that can then be sent to the House for Boehner to consider scheduling for a vote. To get there involves a lot of moving parts. Senate Majority Leader Reid (D-NV) would need to devise a bill, assuming that to ask Boehner for a House vote on the Senate bill passed in July is a non-starter. The bill would likely mirror that recently proposed by President Obama (increase taxes on income over $400,000, reform Social Security using chained CPI and perhaps a few other fixes like the Medicare “doc fix” and means testing). Devising the bill will be easy. Getting a bill passed in the Senate could be improbable.
Reid gets this bill passed in the Senate by working with Minority Leader McConnell’s (R-KY) cooperation but not his blessing. This is where the recent death of Senator Inouye (D-HI) becomes important. A significant number of Senators are traveling to Hawaii this weekend for the Inouye funeral. As President Obama celebrates Christmas in Hawaii it offers an opportunity to invite a few key GOP Senators (e.g. the Gang of Eight; the GOP represented by Senators Chambliss (GA), Coburn (OK), Johanns (NE) and Crapo (ID)) to travel with him aboard Air Force One where a deal gets hammered out. McConnell’s cooperation means the bill is not filibustered so cloture is achieved without McConnell’s YEA vote and the bill is sent to the House for Boehner to consider. The pressure on Boehner to schedule a vote on a bipartisan bill would be enormous, causing him to cave to where the bill likely passes with Republican and Democratic support (but with less than a majority of the majority); one can hear the gnashing of gears in this scenario.
The scene on Thursday in the GOP conference leading to Boehner’s Plan B being pulled from the floor because there were not enough Republican votes means that the GOP House caucus is more intimidated by potential Tea Party primary election challengers than its own leadership. Returning to the castaway analogy of previous notes, what happened yesterday is akin to the final chapter of Lord of the Flies where the stranded children revert to savagery (Boehner playing the role of Ralph). The question is whether the adults, as they did in the book arrive in time to set things straight. The outlook is gloomy, particularly for Speaker Boehner who could be entering his final term in that office given the current outlook of the Fiscal Cliff negotiation and the mood of GOP conference conservatives. The complex scenario described above is the difference between a deal before Dec. 31st and going over the Fiscal Cliff.
If next week, while Congress is in recess, Reid is talking with both the White House and McConnell then an attempt is being made to get a deal done by the end of the year. Otherwise, both sides are prepared (and to some extent willing) to go over the Fiscal Cliff in order to redefine the context of the negotiation that will occur in the 113th Congress where Republicans have fewer Members than in the 112th, weakening the GOP’s hand but also putting the debt ceiling front and center.
Take Note! Sequester: Consider that the required cut of more than eight percent of the Federal Aviation Administration’s budget will entail some hard hitting realities that will cripple the US aviation industry: 2,000 air traffic controllers furloughed; 240 airport control towers closed; 9,000 security screeners and 1,600 custom officials furloughed. For airlines this will mean a reduction in services, less capacity, reduced aircraft certification and fewer flights (requiring less fuel), as well as a lag in NexGen implementation. For cargo: a loss of 2 billion pounds of freight capacity.

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