NEAL CONAN, HOST:
This is TALK OF THE NATION. I'm Neal Conan in Washington. Less than 10 hours from now, we arrive at the political deadline set by Congress and the president a year and a half ago when they mandated a deal on taxes and spending so awful, so unthinkable, that the prospect would surely force a compromise.
Over the past several days, a plan proposed by Republican Speaker John Boehner failed in the House of Representatives. Then the Democratically-controlled Senate couldn't come up with an agreement either. Then a few minutes ago, President Obama said there's a deal within sight but not done yet.
We'll hear his remarks in full, then analysis from the White House and from Capitol Hill. But first to what President Obama said before an audience of supporters in the South Court Auditorium of the White House.
PRESIDENT BARACK OBAMA: Now, I realize that the last thing you want to hear on New Year's Eve is another speech from me, but I do need to talk about the progress that's being made in Congress today.
For the last few days, leaders in both parties have been working toward an agreement that will prevent a middle-class tax hike from hitting 98 percent of all Americans starting tomorrow.
Preventing that tax hike has been my top priority because the last thing folks like the folks up here on this stage can afford right now is to pay an extra $2,000 in taxes next year. Middle-class families can't afford it. Businesses can't afford it. Our economy can't afford it.
Now, today it appears that an agreement to prevent this New Year's tax hike is within sight. But it's not done. There are still issues left to resolve, but we're hopeful that Congress can get it done. But it's not done.
And so part of the reason that I wanted to speak to all of you here today is to make sure that we emphasize to Congress and that members of both parties understand that all across America this is a pressing concern on people's minds.
Now, the potential agreement that's being talked about would not only make sure that taxes don't go up on middle-class families, it also would extend tax credits for families with children. It would extend our tuition tax credit that's helped millions of families pay for college. It would extend tax credits for clean energy companies that are creating jobs and reducing our dependence on foreign oil. It would extend unemployment insurance to two million Americans who are out there still actively looking for a job.
I have to say that ever since I took office, throughout the campaign and over the last couple of months, my preference would have been to solve all these problems in the context of a larger agreement, a bigger deal, a grand bargain, whatever you want to call it, that solves our deficit problems in a balanced and responsible way, that doesn't just deal with the taxes but deals with the spending in a balanced way so that we can put all this behind us and just focusing on growing our economy.
But with this Congress, that was obviously a little too much to hope for at this time.
(LAUGHTER)
OBAMA: It may be we can do it in stages. We're going to solve this problem instead in several steps.
Last year, in 2011, we started reducing the deficit through $1 trillion in spending cuts. Those have already taken place. The agreement being worked on right now would further reduce the deficit by asking the wealthiest two percent of Americans to pay higher taxes for the first time in two decades. So that would add additional hundreds of billions of dollars to deficit reduction. So that's progress, but we're going to need to do more.
You know, keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously the agreement that's currently discussed would raise those rates and raise them permanently. Now...
(APPLAUSE)
OBAMA: But keep in mind, we're going to still have more work to do. We still have deficits that have to be dealt with. We're still going to have to think about how we put our economy on a long-term trajectory of growth, how we continue to make investments in things like education, things like infrastructure, that help our economy grow.
And keep in mind that the threat of tax hikes going up is only one part of this so-called fiscal cliff that everybody has been talking about. What we also have facing us, starting tomorrow, are automatic spending cuts that are scheduled to go into effect.
And keep in mind that some of these spending cuts that Congress has said will automatically go into effect have an impact on our Defense Department, but they also have an impact on things like Head Start. And so there are some programs scheduled to be cut that we're using an ax instead of a scalpel. May not always be the smartest cuts. And so that is a piece of business that still has to be taken care of.
And I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced. Because remember, my principle always has been let's do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts.
Now, the same is true for any future deficit agreement. Obviously we're going to have to do more to reduce our debt and our deficit. I'm willing to do more, but it's going to have to be balanced. We're going to have do it in a balanced, responsible way.
For example, I'm willing to reduce our government's Medicare bills by finding new ways to reduce the cost of health care in this country. That's something that we all should agree on. You know, we want to make sure that Medicare is there for future generations. But the current trajectory of health care costs is going up so high, we've got to find ways to make sure that it's sustainable.
But that kind of reform has to go hand and hand with doing some more work to reform our tax code, so that wealthy individuals, the biggest corporations, can't take advantage of loopholes and deductions that aren't available to most of the folks standing up here, aren't available to most Americans.
So there's still more work to be done in the tax code to make it fairer, even as we're also looking at how we can strengthen something like Medicare.
Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone - and you hear that sometimes coming from them, that sort of after today we're just going to try to shove only spending cuts down, you know, well - shove spending - shove spending cuts at us...
(LAUGHTER)
OBAMA: ...that will hurt seniors, or hurt students, or hurt middle-class families, without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists, et cetera, if they think that's going to be the formula for how we solve this thing, then they've another thing coming.
That's not how it's going to work. We've got to do this in a balanced and responsible way. And if we're going to be serious about deficit reduction and debt reduction, then it's going to have to be a matter of shared sacrifice. At least as long as I'm president. And I'm going to be president for the next four years, I hope. So...
(APPLAUSE)
OBAMA: So anyway, for now - for now, our most immediate priority is to stop taxes going up for middle-class families, starting tomorrow. I think that is a modest goal that we can accomplish. Democrats and Republicans in Congress have to get this done. But they're not there yet. They are close, but they're not there yet.
And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you're supposed to do, they will use that last second.
So as of this point, it looks like I'm going to be spending New Year's here in D.C. You all are going to be hanging out in D.C. too.
(LAUGHTER)
OBAMA: I can come to your house? Is that what you said? I don't want to spoil the party.
(LAUGHTER)
OBAMA: But the - the people who are with me here today, the people who are watching at home, they need our leaders in Congress to succeed. They need us - they need us to all stay focused on them. Not on politics, not on, you know, special interests.
They need to be focused on families, students, grandmas, you know, folks who are out there working really, really hard and are just looking for a fair shot and some reward for that hard work. They expect our leaders to succeed on their behalf. So do I.
And so keep the pressure on over the next 12 hours or so. Let's see if we can get this thing done. And I thank you all. And if I don't see you, if I don't show up at your house...
(LAUGHTER)
OBAMA: ...I want to wish everybody a Happy New Year. Thank you very much. All right.
(APPLAUSE)
CONAN: President Obama, addressing a crowd of supporters in the South Auditorium of the White House, the South Court Auditorium of the White House. With us here in Studio 3A is NPR senior Washington editor Ron Elving. And Ron, on a day filled with political anxiety and tension, a very upbeat President Obama.
RON ELVING, BYLINE: Yes, he was smiling. He was making jokes. He seemed to have something to celebrate. Not entirely sure what he has to celebrate yet except perhaps the contours of a deal that if it were to pass Senate and House tonight, or at some point here in the coming hours, would prevent us going over the fiscal cliff with his signature.
And yes, if we're getting close to something that has a shot of doing that, yes, that would be something to celebrate. But a curious, perhaps, bit of public relations on the president's part here to come out and be quite so ebullient and quite so pleased with it all, mentioning the details of things that he likes and perhaps not the details of things he doesn't like so much, implying when he said two percent at the top of the income pyramid that we were going to be bringing up the tax rates on those, on income above $250,000, which would be that percentage - I don't think it's going to be that, if there is a deal tonight. So the president was putting a smiling presidential Obamaesque face on what may be a decidedly more mixed bag of compromise if in fact we get one later on tonight.
CONAN: And we'll see what the reaction is on Capitol Hill after we come back after a short break. We're talking about the fast-approaching deficit reduction deadline. More with NPR's David Welna, plus analysis from Scott Horsley and more from Ron Elving after the break. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.
(SOUNDBITE OF MUSIC)
CONAN: This is TALK OF THE NATION. I'm Neal Conan. About half an hour ago, President Obama addressed the nation from the South Court Auditorium of the White House. A deal to avert the so-called fiscal cliff, he said, is within sight but not done. As he described it, the deal would include provisions to extend unemployment benefits for Americans who are out of work and tax credit extensions for families with children.
The president, though, expressed regret that his hopes for a grand bargain on tax and spending issues will not be realized, saying that with this Congress, it couldn't happen at that time. NPR congressional correspondent David Welna joins us now from Capitol Hill. David, nice to have you with us.
DAVID WELNA, BYLINE: Hi Neal.
CONAN: And as we last understood it, this bargaining is in the Senate with the Republican leader there, Mitch McConnell, and the vice president of the United States, Joe Biden.
WELNA: Right, well, we don't know if Vice President Biden is actually in the Senate right now. We do know that Republican Leader McConnell is in his offices, just off the Senate floor. There's a crowd of reporters waiting outside to see if there's any news coming from inside. The most we've heard is that McConnell has been working the phones very assiduously today, and he has not spoken on the Senate floor at all.
The only leader we've heard from is Democratic Leader Harry Reid, who opened the session, saying that negotiations continue, that they still have differences to bridge. And that's about as much information as we've heard from leadership on where things stand.
CONAN: So the deal as the president outlined it, are there any more details you can offer us now?
WELNA: Well, what we've been hearing is actually that there has been some yielding on the part of Democrats in terms of the threshold for which some income would not be protected from the expiring tax cuts. Two hundred and fifty thousand is what President Obama has spoken of, he just spoke of it, saying 98 percent of the people should be protected; the top two percent would not be.
It looks like Democrats may be ready to yield to $450,000 for household income for a year. That would ensnare only the top tax bracket, and it would mean a lot less revenue coming in, a lot less than they calculated on before, and that may also put a crimp in what other things they can extend or fix.
And it's not clear, the president did not mention the alternative minimum tax fix, which has been talked about up here or the so-called doc fix that would ensure that Medicare doctors would not see a drop in payments by about a quarter after the first of the year.
CONAN: Also unmentioned was a proposal that was on the table, or maybe not, depending who you listened to, to slow the increase in Social Security payments.
WELNA: That's right although that is something that Republican were bandying about yesterday, and Democrats were saying that is a deal-breaker, and Republicans went into conference, coming out saying that is no longer on the table. They were not willing to go to the mat on that one. It was seen as a permanent policy move simply to offset the cost of one year of extending unemployment insurance.
Now, the president did mention the extension of unemployment insurance for two million people who have been unemployed for more than six months. That seems to be part of this deal right now.
CONAN: Well, give us some idea on timing. If this is going to get done by midnight tonight, what's got to happen?
WELNA: Right, you know, it's one thing to get a deal, and it's quite another thing to first get it through the Senate, where just one senator objecting to it could tie this thing up in knots for days and - before it could even come to a final vote. It's not clear whether we're going to get that.
We heard from some senators early today indicating that they were very much opposed to this. In fact, Senator Tom Harkin got up on the floor and, you know, he said that he'd been hearing rumors that $450,000 would be the new threshold rather than $250,000, and he said that just wouldn't work for him.
CONAN: Well, that's a liberal Democrat. There are also conservatives and Republicans like Jim DeMint. If they objected, again this would not go ahead.
WELNA: That's true, and in fact Rand Paul, another conservative Republican with Tea Party backing, said that if there's a deal out there that means raising taxes for anyone, he was not going to be voting for it. Now he did not say I will filibuster it, but imagining that this all got through the Senate, it would then have to go over to the Republican-controlled House.
And the House is possibly even bigger hurdle for such a deal to get through than the Senate because there are so many Republicans who have said they will not raise anyone's taxes. And doing so before midnight tonight would mean that a certain number of taxpayers would be hit by higher tax rates at the top.
If they wait until tomorrow, when all the tax rates have gone back to their Clinton-era levels, and they pass legislation to restore all but the top tax rates, they could simply claim that they voted for a tax cut, and while it didn't cover everybody, at least they did not vote to raise taxes on anyone.
But that would have to be after midnight tonight. We won't see any real consequence of going over a fiscal cliff until Wednesday at the earliest, since tomorrow is a federal holiday. So in theory, Congress may have until tomorrow night to actually get this thing done.
CONAN: David, sounds like you've got an interesting several hours in front of you.
WELNA: Indeed.
CONAN: David Welna, stay tuned, come back to us if you have updates on any reaction from the Republicans and the Democratic leadership on the Hill. Appreciate it.
WELNA: Absolutely, Neal.
CONAN: NPR congressional correspondent David Welna. In the meantime let's now go to Scott Horsley, who's NPR's White House correspondent, and Scott, it sounded, the president said the deal's within sight, it's not done yet, but the president sounded in a celebratory mood.
SCOTT HORSLEY, BYLINE: Well, he did, and that's sort of curious. You know, when he was surrounded there in the South Court Auditorium by these quote-unquote middle-class taxpayers, and I dare say no one on that stage behind the president is in that range above $250,000 and below $450,000, the people who would benefit from apparently this concession that the Democrats have made to raise the threshold at which Bush-era tax cuts would be preserved.
CONAN: And it's interesting, in his appearance on "Meet the Press" on Sunday, the president scolded Congress. He took a couple shots again today.
HORSLEY: Yeah, he said that they always take every second that's available to them, and as David suggests, they may kind of take a pass on tomorrow since the stock market's closed. They may say well, the new year doesn't really begin until Wednesday morning, and that gives them another 24 hours.
CONAN: But in the meantime, the president is hoping to get this deal through the Senate and then through the hurdle of the House of Representatives. Is there any prospect that this is going to be open to a, well, what's called a free vote, an open vote that the Republican leadership is going to let their membership vote whichever way they want?
HORSLEY: Well, remember the president had said he was going to call for a free vote, and up or down vote, in both chambers for a deal that would have kept that threshold at $250,000 and along with the extension in unemployment insurance. So in this case the Republicans actually have gotten a good deal out of this delay, this bargaining, this hard bargaining that they've been doing.
The Democrats have conceded a lot. I think the Republicans would be foolish not to take this and run with it if they can get it.
CONAN: Yet some people might look at it and say it's not as good a deal as they could have had a couple of weeks ago.
HORSLEY: Well, that's right. I mean, the president said today, and it's been the case all along, that he really wanted to get a sort of global deal. He was willing to give up some $800 billion in spending cuts over the course of a decade, $400 billion of that coming from the health care entitlement programs.
You mentioned the change in the way inflation's calculated that he was willing to concede that would have resulted in slower growth in Social Security payments. Big concessions on the part of the Democrats, but all of that would have been in exchange for more than a trillion dollars in new tax revenue, this deal is maybe 60 percent of that, plus a lifting of the debt ceiling, which is something that we're now going to have to fight over again in just a few months if this deal goes through.
There's nothing in this deal that prevents the Republicans from holding the country hostage on the debt ceiling, as well as some new spending on public works, infrastructure. That's something that the president would like to get as a stimulus measure.
Now there are things in this package that are being talked about, extensions of some of the tax cuts that were in the stimulus, which are important to the president, but still they're leaving an awful lot of revenue - the Democrats, that is, are leaving an awful lot of increased revenue on the table if this deal comes through the way it's being reported that they could have had as the president in his report have said for free.
Remember if all those tax - if nothing happens, if no deal is struck, all those tax hikes take place automatically. He never was going to be in a stronger bargaining position to get tax increases out of reluctant Republicans, and it seems, if this deal takes shape the way it's being reported, as if the Democrats have made very big concessions on the tax revenues.
CONAN: And they will...
...Republicans, and it seems if this deal takes shape the way it's being reported as if the Democrats have made very big concessions on the tax revenues.
And they will, as David Welna mentioned earlier, lose some supporters on the liberal side of the Democratic caucus. In the meantime, though, Republicans will have - some Republicans will have surrendered on the philosophical issue of never raising taxes.
SCOTT HORSLEY, BYLINE: Exactly, exactly.
CONAN: All right. Scott Horsley, thank you very much.
BYLINE: Thank you.
CONAN: With us here in Studio 3A is Ron Elving, again, our senior Washington editor. And, Ron, if there is agreement on that, if there is agreement by Republicans to raise taxes, if that philosophical breakthrough has happened, then you're just talking numbers, correct?
ELVING: Theoretically, the question, of course, is the House and I believe has always been the House, even though the action lately has been in the Senate. That's because the House had so completely failed in the attempt first to negotiate with the president and then to pass an alternative - it was called Plan B, the speaker's idea - and that also could not even be brought to the floor for a vote because of lack of support among Republicans, or at least sufficient support among Republicans.
So the problem here is really within the Republican majority in the House. They have not been willing to consider any kind of revenue increase that involved the tax increase by rate on anyone, only revenues that might come from tax reform, kind of a theoretical thing down the road somewhere. And so if this deal gets through the Senate and if indeed Speaker Boehner is willing to have a free vote, as you called it, that the Republicans would be getting their chance to vote on the floor but so would do the Democrats. In other words, it would be brought to the floor and not prevented from coming to the floor.
CONAN: Prevention would have been normally the Republican speaker - or Democratic speaker for that matter - would say, I'm not going to present this important bill unless I'm assured that the majority of my own party is going to vote for it.
ELVING: Which has, as a practical matter, been the overwhelming majority of my party. If I could have, let's say, 200 votes from my party but not the last 42 votes from my party, that would be a majority of the 242 that John Boehner is trying to get here, but John Boehner has not really wanted to play the game that way. He's wanted to have the clear passage of a bill of this importance with Republican votes only. Now, of course, if some Democrats want to come over and help, that's fine, but he wants to have it with the Republican votes.
That's much, much more difficult than getting a plain, ordinary 50 percent plus one majority of the majority that is the Republicans. So this is very inside baseball. It's the kind of thing that people raise their hands and wave their hands and say, please will you just tell me what they're going to do. Well, this is why it's difficult. It's difficult because the internal politics of the Republican Party, in this case because at this moment they are the majority party in the House, are quite complicated.
And John Boehner does not have their love and endless support, and he is up for re-election on Thursday. That's just a few days away. So he would like not to offend major portions of his Republican majority at this particular moment as he is on practically the eve of his re-election contest.
CONAN: If you just joined us, President Obama has said that a deal to avoid the so-called fiscal cliff is within sight but not done yet. Important details remain to be worked out. And as we've pointed out, that deal is in the U.S. Senate. And well, even if it passes there, it would have to pass the House. You're listening to TALK OF THE NATION from NPR News. And, Ron Elving, one other point, and this is just to emphasize something that Scott Horsley was saying, if this deal, as the president outlined it, is passed, well, that's not settling the problem. It's not hats in the air. This whole thing is settled. We've got the debt ceiling coming up in just a few weeks.
ELVING: And the whole spending issue. All we seemed to really be addressing here is the revenue side. We're talking about the estate tax. We're talking about the income tax. We're talking about the payroll tax. We're talking about the alternative minimum tax, which supposedly this deal will include a permanent fix for, perhaps by indexing it to inflation so it doesn't continue to ensnare more and more and more middle-class families. It was initially created to keep millionaires from avoiding taxation entirely. So all those are revenue issues.
The whole other question of spending which under the fiscal cliff arrangement, if we went over the cliff, there was going to be $1 trillion sequester over 10 years, and this was going to involve $110 billion immediately, and half of it from defense. That was very upsetting to a lot of people. The Defense Department is already seeing some spending cuts. So this was very upsetting to a lot of people too. We have not dealt with that thus far in this deal whatsoever.
CONAN: If the congressional tug-of-war over the end-of-the-year deadline has affected your life in some way, caused you to put off a decision, pushed another one up, give us a call, 800-989-8255. Email us: talk@npr.org. And let's see - we can start with Sue. Sue is on the line with us from Derby in Kansas. Sue, are you with us? Sue, are you there? I guess Sue has left us. So let's see if we can go instead to - if I can hang up on that call, we'll go to Beth, and Beth is on the line with us from Schenectady in New York.
BETH: Hi. I'm going to try to make this - my mother runs an outreach organization. She deals with the inner-city poor, and I do a little bit of work for her. And it's a constant struggle as it is, and we're talking people who - well, you can't live - I don't care what anybody says. You can't live on welfare. Anyway, I'll just be blunt. I teach creative movement and dance for her a couple of nights a week, but she runs a whole plethora of programs from medical programs to - she does everything and...
CONAN: And how is all this tug-of-war affecting you and her?
BETH: Well, her donations have already dried up, and I've never seen - it's the issue of whether or not she's going to be - people are going to be able to get donations. She gets corporate donations and she gets private donations. And it's, you know, it's a real concern, and it's not just a concern so much - I mean, the organization does outreach work. But if they're going to be making cuts to social programs, that means that makes her job all the more worse.
CONAN: Well, Ron Elving, social programs, we know that some programs, very important to Democrats, Medicare and Medicaid, Social Security, are not part of this sequester, this automatic cut if we do go over the cliff. What about the kinds of programs that Beth is talking about?
ELVING: When I was talking about those cuts a few moments ago, something like 10 percent across the board, is discretionary spending of the federal government. That's the military and all the other programs the federal government has. The non-discretionary ones are the ones we call entitlements. That's Medicare, that's Social Security. It's pension promises that have already been made to veterans and other employees of the federal government. So we're talking about the discretionary staff. And the exact kinds of programs that sometimes get funded to help the poor are very much on the chopping block.
Now, when I said a moment ago that we weren't dealing with that, I mean that the deal that is supposedly in the works in the Senate right now appears to be entirely on the revenue side. And they would just be putting off this sequester for further debate later on, which means we'll have to come back and deal with it. But the cuts would not necessarily be made at midnight tonight.
CONAN: So the spending would continue at the previous year's level, until such time there's a new deal has to be made, whenever the next deadline is.
ELVING: Which would probably be pretty soon. It would be a can kicked on the road, but not very far, down a very short road.
CONAN: But, Beth, we can understand how you and your mother may have some difficult decisions and uncertainty. Thanks very much for the phone call.
BETH: Thank you.
CONAN: We're going to take more of your calls after a short break. Stay with us. I'm Neal Conan. NPR senior Washington editor, Ron Elving, is with us as the president says a deal within sight in the U.S. Congress. Maybe, but it's not done yet. Stay with us. It's the TALK OF THE NATION from NPR News.
(LAUGHTER)
CONAN: On this last day before the deadline, we're talking about the so-called fiscal cliff. Just an hour ago, President Obama urged Congress to get a deal done in time. Details of a possible agreement are beginning to emerge, raising tax rates on families with incomes over $450,000 a year, an extension of unemployment benefits, but there is much for Congress left to decided, including whether and how to put off the across-the-board spending cuts after January 1 if no deal is met.
Congress has been deliberating for months now. But we want to hear how the fiscal cliff's back and forth is affecting your life if you've made a decision based on what may happen tomorrow or put one off until later. Call, tell us your story, 800-989-8255. Email us: talk@npr.org. You can also join the conversation at our website. That's at npr.org. Click on TALK OF THE NATION.
Our guest, Ron Elving, NPR senior Washington editor, with us here in Studio 3A. And, Ron, remind us of some of the stakes here. If the spending cuts and tax increases all go into effect, well, a lot of the economists say, we could expect to go into another recession. A lot of people are going to lose their jobs.
ELVING: This is a large amount of money that we're talking about. The amount of taxation from returning overnight, to the 1990s' levels on all levels of federal income. In other words, if you pay federal income tax, your taxes will go up. The payroll taxes going up. It has been temporarily down to 4.2 percent on all wage-earner income up to about $110,000 a year. That would go up by 2 percentage points, to 6.2, where it was back before the Obama administration lowered it.
That's a lot of taxation money, plus a lot of other things as well, a state tax and what have you. And that would be taking a lot of money out of the economy through taxation. At the same time, this also included an almost unthinkable level of spending cuts over - almost overnight, in a very short period of time in terms of federal budgetary timeline. So that a 10 percent across-the-board cut in discretionary spending - defense and non-defense - would take effect beginning this year. And that was going to be about a $110 billion of spending taken out of the economy.
So when you talk about federal fiscal policy, when you talk about this enormous federal budget, it's taking money out of the economy, putting money back into the economy in other places. But if raise taxes and you lower federal spending at the same time, it has the effect of slowing the economy down. It takes money out of the economy in both ways.
CONAN: And one other factor. When this debt ceiling crisis deal was made, this fiscal cliff was put in place, well, the signs of dysfunction in the U.S. government led one of the big credit agencies to downgrade the U.S. credit from AAA for the very time in history. Might this all convince some of the other agencies to do the same?
ELVING: Yes, and they have threatened to do that, not just because it would necessarily make the United States a different economy overnight or, perhaps, push us back towards recession, but because one of the factors in the credit worthiness of any country in the world or any corporation is its governance. If you've got a bad corporate governance, a bad board of directors, a bad CEO, that's going to affect the credit rating of that company.
And in the case of a government, if you have a dysfunctional government that cannot get its fiscal house in order, or at least do something to show that it's going to at some point down the road - honor its commitments, among other things, raise its debt ceiling if you keep spending money on a cuff - then you don't have a responsible group of individuals to trust. And that's going to lower your credit worthiness.
CONAN: Let's see if we get some callers in on the conversation. Again, has all these wrangling over the spending cuts and the tax increases, has that forced you to change your plans? Give us a call, 800-989-8255. Email us: talk@npr.org. George is on the line with us from San Jose in California.
GEORGE: Good morning, Neal and guest. My old car is about ready to give up out me, and I've been looking at new cars, a Toyota Corolla I can get for about $20,000, I think. But I need that payroll tax rebate. I get about $2,000 of that - of the payroll tax rebate. If that gets cut for me, I won't be able to purchase it.
CONAN: So it's - the margins are that tight.
GEORGE: Yeah. The margins are that tight. And if I don't get that, I'll have to just put my money into repairing my old car.
CONAN: And what kind of shape is the old car?
GEORGE: Well, it's a 1992, so it's 20 years old. And so, you know, it's constantly breaking down, but that's about the best I can do. It looks like Congress is set to give my $2,000 to my wealthy neighbor, who makes 450,000.
CONAN: So we'll have to see how that works out. George, good luck.
GEORGE: Thank you.
CONAN: Appreciate the phone call. And it's interesting - there's been all this talk, Ron, of pent up demand in the American economy, all the people like George who have put off buying cars. Well, as things have gotten rolling again - the economy has been growing sluggishly for sure, but it's been growing, confidence was building in the fall, the idea that this pent-up demand, the housing market was beginning to come back, that things might begin to take off - this could put a kibosh on that.
ELVING: Oddly enough, there have been so many signs of renewed health in the economy in just the last six months that the stock market, depending on which index you look at, has been up from high single digits to sort of mid-teens over the year, even though it's still a sluggish recovery. But we've seen unemployment drop below 8 percent. We've seen housing prices recover. We've seen foreclosures down, and we've seen American manufacturing coming back in some very heartening ways. But all of that is, in some sense, thrown into or under a cloud if we aren't sure about our credit rating, if we aren't sure we're going to honor our obligations as a federal government and if, as we've been saying, the economy takes a hit because of fiscal policy.
CONAN: Here's an email from Tyler(ph): I'd heard that the charitable gift deduction - tax deduction was on the table in the fiscal cliff discussions. As an orchestral musician, I worry about the effect of such a decision on arts funding. What's the status of the charitable gift deduction at this stage of the discussions?
ELVING: I don't believe that right now we're talking about things of that nature. We're talking about tax rates. We're talking about the alternative minimum tax. We're talking about the estate tax. And there has been a lot of pressure to have a broader tax reform in which we would examine things like itemized deductions that would include charitable deductions. It would - or charitable donations, rather, and other forms of deductions such as one's mortgage payments, the interest portion of those mortgage payments, and you know, things like taxes that people pay to their states and local governments, property taxes. A lot of things that regular, American, middle class families kind of count on to lower their overall federal tax bill might be on the chopping block. But right now, in these negotiations, we're looking at some other elements.
CONAN: Let's go back to - I think this is Sue. Sue called us earlier from Derby, Kansas. We lost her, and she's back on the line with us. Nice of you to - nice to join us.
SUE: Well, thank you.
CONAN: What's your question?
SUE: Well, I had a question initially about whether the property tax and interest - mortgage interest would be on the table at this point. We are senior citizens on a fixed income. Granted, we're comfortable but nowhere near 250,000 a year. We have two sons who are both dependent on military employment for their family's well-being. We have a daughter - I'm sorry, a granddaughter who has diabetes and is very much aware of the changes in medical policy that will affect her as she gets older, as are her parents.
Whatever we do beyond the normal day-to-day living is dependent on the performance of our investments in the stock market, so we're concerned about another recession, seeing another hit to those investments. We're concerned about increased taxes on our interest and dividends that - you know, when we do decide to take money out of our investments. All in all, it's just made us very insecure.
CONAN: It sounds like you're - there's five or six ways your family is being affected, between...
SUE: Definitely.
CONAN: ...your sons and your money in the stock market, and you say you're elderly, so Medicare as well.
SUE: I didn't say elderly. I just made Medicare.
CONAN: OK. All right. That's not elderly.
SUE: But we are on a fixed income.
CONAN: Well, Sue...
SUE: So we understand that aspect of life for a lot of people a lot better now. And we have friends who are unemployed. I mean, you know, we're in the middle of the best(ph) middle class, and we see the effects on everybody around us, you know, people who's unemployment benefits are going to run out, and we're in the Wichita area, where employment has been iffy in the aircraft industry.
CONAN: When you said your sons are relying on the military, are they in uniform or do they work for contractors?
SUE: They're both in reserves. My daughter-in-law is active right now on a contract with the military. And my son is a federal employee working at a military base and very concerned that his job may be affected by the sequester.
CONAN: He's right. It well might be.
SUE: Yeah, so, you know, we've been - even my husband, who is not a political junkie like I am, is concerned. And today we had that conversation, and it raised my level of insecurity to know that he's thinking about those things. So I just wanted to speak for, you know, people who may not be politically active but who are going to be impacted no matter what happens today.
CONAN: Well, Sue, we wish you and your family the best of luck. Thank you very much for the call.
SUE: Thank you. May I just make one other point?
CONAN: Sure.
SUE: Nobody talks about the increases in the day-to-day commodities. You know, at the same we've seen the recession affecting employment and housing and so forth, just trips to the grocery store are disconcerting. And I know if it's hard for me to pay those increased prices for meat and bread and eggs and milk, it must be really horrible for a family, you know, raising children and maybe on unemployment or underemployed. And I think it's time that we start addressing some of those aspects of our economy.
CONAN: Sue, thanks very much...
SUE: Because they've been - OK.
CONAN: It's a really good point. I just wanted to bring that up. Thanks very much for the call. And Ron Elving, one of the other issues that's been hanging fire, if you will, is the agricultural bill and price supports for milk.
ELVING: That's right. And if we don't get that resolved in whatever kind of a deal gets done here in the next few hours, we could see a sudden spike in the price of milk because of the loss of the usual price support. So we could see - people have been talking about $7 a gallon of milk, and I hope that doesn't happen. I'm not trying to scare people. But that would be one of the ways that this freeze-up in Congress's failure to do Congress's compromising business and to reach deals so that legislation can be passed would bite the average American family.
CONAN: A little over an hour ago, President Obama said a deal is within sight. Now, the top Senate Republican, Mitch McConnell, says they are very close to a deal, that the talks with Vice President Biden have been, quote-unquote, successful, agreements reached on all tax issues. That isn't all the issues though. Stay with us. It's TALK OF THE NATION from NPR News. Let's see if we can get to another caller. And this is Liz, and Liz is on the line with us from Orlando.
LIZ: Hi. Thank you for taking my call.
CONAN: Go ahead, please.
LIZ: Well, I actually work for a real estate attorney here in Orlando. And we have a lot of clients who buy and sell mobile home parts which tend to be multi-million dollar transactions. And normally this is a very, very busy time of year for us. And it's just slowed down to a snail's pace. And we've actually had a few contracts canceled specifically because of the insecurities in the taxes next year and the fiscal cliff. So - and then that trickles down to me, and I certainly do make less than 250 a year.
CONAN: And how do your customers express it to you?
LIZ: Well, they usually cancel during our due diligence period. And they just - because of the amount of money that they're spending and the insecurity and what kind of taxes they're going to be paying next year, they'll usually just end up canceling the contract altogether.
CONAN: It's like cars, I guess. You have that free period where you can cancel a contract?
LIZ: Correct. Uh-huh.
CONAN: And so how often is that happening?
LIZ: Well, normally we have a lot more contracts this year. We've only had three contracts signed. And two of those have canceled specifically because of that.
CONAN: It's gonna be a tough year if that goes on.
LIZ: Yeah, exactly.
CONAN: Thanks, very much, Liz. We hope things pick up for you.
LIZ: Thank you so much.
CONAN: And again, it's that automotive industry that played such an important part in the conversation during the election, Ron Elving, how the big three came back after the United States government helped to bail out two of them and parts manufacturers for all of them. And this is going to be a big setback for Detroit if it goes ahead.
ELVING: As we heard earlier from one of our callers, George, he's reconsidering the purchase of a brand new automobile. That obviously makes a difference to the auto industry. And as we heard just now from Liz and earlier from Sue, they have excellent, specific ways in which their life is affected by federal fiscal policy, either because there's a program or because they're being asked to pay taxes in a variety of ways, or both. And it sounded, particularly in Sue's phone call, as though she really did represent half a dozen or more of the different ways that people are going to feel the effects of this bargain if it's not struck, if we do go over the fiscal cliff.
I know it seems like a lot of Washington are on and on, you know, numbers and so on. But these effects can be quite real and can be quite soon for many Americans, most Americans, and we are certainly hoping people don't actually lose their jobs, and we certainly don't want people to have to pay so much more in taxes that they suddenly can't purchase the things that they need. But these are the potential consequences of political failure.
CONAN: We're gonna be talking much more about this tomorrow on TALK OF THE NATION. Obviously we'll bring you an update on whether there is a deal or not. But also we're gonna be hearing about the housing market in particular and focusing on investments as well, how all of this uncertainty is changing people's plans, what they think they're going to do now. But I wanted to read this email from Jim: "I changed my withholdings, claiming far more exemptions to cover the likelihood that no deal would be done before the first of the year but would likely be done and then made retroactive."
Well, you know, a lot of people are thinking, even if we go over this dreaded fiscal cliff, Ron Elving, well, then you're in a situation where you're not worrying about tax increases, you're worrying about tax cuts. You're not talking about spending - you can talk about spending increases as well. The politics completely change. This could be good for people in both parties.
ELVING: I could change enough to be a tipping point to get a more reasonable agreement, if we do go over the cliff, in the quotes, and if we come back next week to come and look at all this again with a slightly different Congress, with a re-elected, perhaps, Speaker John Boehner, with the president having even more leverage than he has now; it's quite possible that a better deal could be struck in the minds of many Americans. And this could all be made - that magic word - retroactive. We could take it all back to midnight tonight and hold everyone harmless. It's even possible that there would be directives given to the IRS: Don't change the rules. Don't send out any new numbers. Tell all the employers and the payroll companies, freeze in place. Give it another so many hours, so many days, maybe 30 days at the maximum. Give Washington another chance. Maybe Washington doesn't deserve it, but give them another chance.
CONAN: Well, just to recap, we had the president say about, oh, an hour and a bit ago, that a deal is within sight. Now, the Republican leader in the Senate says they are very close to a deal agreement on the tax issues, but the Senate needs to continue to talk about reductions in spending. But that a deal for the Senate. It would have to get through the Senate and then get through the House of Representatives. So stay tuned to NPR News for further updates as the fiscal cliff is still approaching. More on this tomorrow on TALK OF THE NATION. I'm Neal Conan, NPR News in Washington. Transcript provided by NPR, Copyright NPR.