The odds that Congress and the White House will strike a deal averting the so-called “fiscal cliff” before the Jan. 2 deadline are better than 50-50 — but not by much, former U.S. Senate Majority Leader Thomas Daschle told a group of Maryland business executives Wednesday.
He pegged the probability at 60 percent to 70 percent.
“Congress doesn’t tend to act until they absolutely have to,” said Daschle, speaking before about 70 people at a Tech Council of Maryland forum at the Bethesda Marriott. “I think they will do the right thing.”
Still, Daschle’s assessment that there’s up to a 40 percent chance of going over the cliff and triggering $1.2 trillion worth of cuts in projected federal spending over the next decade is unsettling, said Howard S. Schwartz, a partner with law firm DLA Piper in Baltimore. Daschle also works for DLA, one of the corporate sponsors of the forum, as a senior policy adviser in its government affairs practice and a member of its global board.
“That was surprising,” Schwartz said of Daschle’s oddsmaking.
Matthew Sweatt, director of business development for SoBran of Fairfax, Va., said he went to the meeting thinking the chance of a fiscal cliff deal by the deadline was more like 95 percent. But after hearing Daschle, he said he may have to re-evaluate his assessment.
“I think they will come to some sort of agreement, but it will probably only be a temporary fix,” said Sweatt, whose company manages laboratories, screens mail and organizes warehouses for public and private clients and has a regional office in Burtonsville.
Daschle’s prognostication is in line with that of former White House chief of staff Erskine Bowles, who said on CNBC Monday that there was a 65 percent chance of a deal being struck by early January. That included a 40 percent chance by the end of the year, said Bowles, co-chairman of President Barack Obama's National Commission on Fiscal Responsibility and Reform in 2010.
The situation has been long in the making, fueled most recently by large tax cuts in the early 2000s, two major wars and the Great Recession, Daschle said. Blame should be shared by both Democrats and Republicans, he said.
“They kicked the can down the road,” Daschle said.
Asked what spending he would cut if he were still in Congress, Daschle — a South Dakota Democrat who spent three terms in the Senate and four terms in the House — mentioned farm subsidies, military retirement health care benefits and entitlement programs. The Pentagon is still in a “Cold War posture” and needs to re-examine whether the U.S. military should continue to be the “world’s policeman,” he said.
“We still have 50,000 troops in Germany,” Daschle said. “We probably don’t need that many.”
If a deal is not struck, workers can expect significant tax increases, said George A. Whitehouse, executive vice president and chief marketing officer of Rockville payroll and human resources services company Payroll Network.
One scenario calls for the 2 percentage-point tax holiday on employees’ Social Security payroll taxes to expire, causing the FICA withholding tax rate to rise back from 4.2 percent to 6.2 percent. So an employee earning $50,000 can expect to have about $1,000 more withheld in 2013.
“That could change, depending on if a deal is reached, and what exactly is in the deal,” said Whitehouse, a certified public accountant.
Tax cuts enacted under former President George W. Bush also will expire unless a deal is reached to extend them. The Obama administration wants to see marginal rates rise on only the highest income bracket.
There also could be changes to tax deductions next year, Whitehouse said. For example, the child tax credit could be reduced to $500 per child from $1,000.
The capital gains tax rate also would rise and the tax on dividends would skyrocket from 15 percent to as high as 39 percent unless a deal is struck, Whitehouse said. Marriage penalties would increase, and the alternative minimum tax also would not be “patched” as in previous years to keep pace with inflation.
Then there are increases that will occur regardless of what happens to the fiscal cliff, including higher Medicare taxes due to the federal Affordable Care Act, Whitehouse said.
“People in Maryland will have more exposure to the possible tax increases since they generally earn more on average than people in most other states, and pay higher income and property taxes,” Whitehouse said. “And cuts in government spending will affect our area more than many others.”
Redundancy in health care
Health care is another major spending area with many redundancies, Daschle said during his talk. Market-driven advertising related to medication and services creates “unnecessary care,” and there are “too many readmissions” to hospitals, he said.
Political campaigns, including those leading to last month’s elections, have learned to use data to effectively hyper-target ads to voters, and that will increase, Daschle said. Another key political trend is the increasing power of ethnic minorities, he said.
Daschle also predicted an increase in bioterrorism attacks, though he said the nation is becoming more technologically advanced to deal with such attacks. The private and public sectors aren’t partnering enough, he added.
Asked about overzealous government regulators, Daschle said a key problem was that regulators go overboard because they don’t want to be publicly grilled in the event of a mistake.
“They are afraid of being hauled before a congressional committee or the media and being asked, ‘How come you didn’t catch that?’” he said.