WASHINGTON — Senior lawmakers said Thursday that they were moving quickly to take advantage of the postelection political atmosphere to try to strike an agreement that would avert a fiscal crisis early next year when trillions of dollars in tax increases and automatic spending cuts begin to go into force.
Sen. Bob Corker, R-Tenn., said he had begun circulating a draft plan to overhaul the tax code and entitlements, had met with 25 senators from both parties and “been on the phone nonstop since the election."
Sen. Olympia Snowe, R-Maine, who will retire at the end of the year, made it clear that she intended to press for a deal to avert the so-called fiscal cliff and get serious on the deficit, lame duck or not.
“The message and signals we send in the coming days could bear serious consequences for this country," she said. “It could trigger another downgrade. It could trigger a global financial crisis. This is a very consequential moment."
Sen. Charles Schumer of New York, the No. 3 Senate Democrat, extended an olive branch to Republicans, suggesting Thursday that he could accept a tax plan that leaves the top tax rate at 35 percent, provided that loophole closings would hit the rich, not the middle class. He previously had said that he would accept nothing short of a return to the top tax rate of Bill Clinton’s presidency, 39.6 percent.
“If you kept them at 35, it’s still much harder to do," Schumer said, “but obviously there is push and pull, and there are going to be compromises."
The nonpartisan Congressional Budget Office underscored the stakes in a report Thursday that framed Washington’s dilemma. It said that if automatic spending cuts go into force and all the Bush-era tax cuts expire, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse, the report said.
The accelerated activity in Washington showed that members of Congress believed the election had amplified the imperative to strike a deal. Still, signs that the two sides are open to some compromise are no guarantee that they can reach an agreement after warring for two years.
Many Republicans will continue to resist any proposal that can be read as increasing taxes, and many Democrats will balk at changes in entitlement programs and spending cuts.
The budget office report suggested that allowing the Bush-era tax cuts to expire for households earning more than $250,000 a year — a position strenuously opposed by congressional Republicans — would have relatively modest economic impacts, versus many of the other components of the fiscal cliff.
“House Republicans must end their intransigence on tax cuts for the very wealthy and sit down on a bipartisan basis to finish the work of this Congress," said Rep. Sander Levin of Michigan, the ranking Democrat on the House Ways and Means Committee.
A separate CBO report released Thursday threw cold water on Republican beliefs that a simplified tax code that lowered income and payroll taxes and closed loopholes to make up for lost revenue would substantially close the deficit by boosting economic growth. Such a plan would raise about $100 billion a year by 2020, far less than Democrats say is necessary, the report said.
Corker said many Senate Republicans were willing to agree to a deal that raises more revenue through an overhaul of the tax code, and that additional revenue must be generated by taxation, not just economic growth.
In a speech Thursday in his home state of South Carolina, Sen. Lindsey Graham said fellow Republicans should hold the line on tax rates, but they had to accept that a reformed tax code would raise more revenues. Only then, he said, can they expect Democrats to negotiate changes to entitlement spending.
Speaker John Boehner, R-Ohio, has said he will agree only to a deal that lowers the top income tax rate from the current 35 percent, not from the top rate that is scheduled to kick in on Jan. 1, 39.6 percent. He said that additional revenue would be generated by economic growth spurred by a simpler tax code, not by higher taxes.
Spinning revenue from tax cuts like that, Schumer said, is a “Rumpelstiltskin fairy tale."
Conservatives are not giving in.
“We will certainly face many battles in Congress in the coming months that will give us the opportunity to clearly articulate the failures of liberalism and the common sense of conservative alternatives," Sen. Jim DeMint, R-S.C., said Thursday on Facebook. “We must not shrink from the fight on Capitol Hill."