Fiscal cliff deal would pale against expectations

WASHINGTON (AP) -- Whether negotiated in a rush before the new year or left for early January, the fiscal deal President Barack Obama and Congress cobble together will be far smaller than what they initially envisioned as an alternative to purposefully distasteful tax increases and spending cuts.

Instead, their compromise, if they do indeed cut a deal, will put off some big decisions about tax and entitlement changes and leave other deadlines in place that will likely lead to similar moments of brinkmanship, some in just a matter of weeks.

Republican and Democratic negotiators in the Senate were hoping for an accord as early as Sunday on what threshold to set for increased tax rates, whether to keep current inheritance tax rates and exemptions and how to pay for jobless benefits and avoid cuts in Medicare payments to doctors.

An agreement would halt automatic across-the-board tax increases for virtually every American and perhaps temporarily put off some steep spending cuts in defense and domestic programs.

Gone, however, is the talk of a grand bargain that would tackle broad spending and revenue demands and set the nation on a course to lower deficits. Obama and Republican House Speaker John Boehner were once a couple hundred billion dollars apart from a deal that would have reduced the deficit by more than $2 trillion over 10 years.

The trimmed ambitions of today are a far cry from the upbeat bipartisan rhetoric of just six weeks ago, when the leadership of Congress went to the White House to set the stage for negotiations to come.

"I outlined a framework that deals with reforming our tax code and reforming our spending," Boehner said as the leaders gathered on the White House driveway on Nov. 16.

"We understand that it has to be about cuts, it has to be about revenue, it has to be about growth, it has to be about the future," House Democratic leader Nancy Pelosi said at the time. "I feel confident that a solution may be in sight."

And Senate Majority Leader Harry Reid, D-Nev., offered a bold prediction: "There is no more let's do it some other time. We are going to do it now."

That big talk is gone for now.

Senate negotiators were haggling over what threshold of income to set as the demarcation between current tax rates and higher tax rates. They were negotiating over estate limits and tax levels, how to extend unemployment benefits, how to prevent cuts in Medicare payments to doctors and how to keep a minimum income tax payment designed for the rich from hitting about 28 million middle class taxpayers.

But the deal was not meant to settle other outstanding issues, including more than $1 trillion in cuts over 10 years, divided equally between the Pentagon and other government spending. The deal also would not address an extension of the nation's borrowing limit, which the government is on track to reach any day but which the Treasury can put off through accounting measures for about two months.

That means Obama and the Congress are already on a new collision path.

Republicans say they intend to use the debt ceiling as leverage to extract more spending cuts from the president. Obama has been adamant that unlike 2011, when the country came close to defaulting on its debts, he will not yield to those Republican demands.

As the day ended Saturday, there were few signs of success on a scaled-back deal, but no one was declaring a stalemate either.

Lawmakers have until the new Congress convenes to pass any compromise, and even the calendar mattered. Democrats said they had been told House Republicans might reject a deal until after Jan. 1, to avoid a vote to raise taxes before they had technically gone up, and then vote to cut taxes after they had risen.

Republicans said they were willing to bow to Obama's call for higher taxes on the wealthy as part of an agreement to prevent them from rising on those less well-off.

Democrats said Obama was sticking to his campaign call for tax increases above $250,000 in annual income, even though in recent negotiations he said he could accept $400,000. There was no evidence of agreement even at the higher level.

Obama, who once proposed nearly $1.6 trillion in tax revenue over 10 years, would get about half of that if he succeeded in getting a $250,000 threshold over 10 years. At a $400,000 level, the revenue figure drops to about $600 billion over a decade.

Republicans want to leave the estate tax at 35 percent after exempting the first $5 million in estate value. Officials said the White House wants a 45 percent tax after a $3.5 million exemption. Without any action by Congress, it would climb to a 55 percent tax after a $1 million exemption on Jan. 1. Obama's proposal would generate more than $100 billion in additional revenue over 10 years.

Democrats stressed their unwillingness to make concessions on both income taxes and the estate tax, and hoped Republicans would choose which mattered more to them.

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Associated Press writer David Espo contributed to this article.

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