By Alexander Bolton - 08/02/12 11:44 PM EDT
Treasury Secretary Timothy Geithner met with Sen. Patty Murray Thursday amid increased fears in Washington that Congress might decide not to act to prevent the nation from going over the so-called fiscal cliff.
Murray, (Wash.), the Democratic co-chair of the 2011 deficit supercommittee, recently said that Democrats would allow all of the Bush tax rates to expire and then seek to renew lower rates for the middle class, unless Republicans agree to raise taxes on the nation’s highest income earners.
Geithner is keen to avoid the chaos that would result if Congress careened over the fiscal cliff, raising speculation about whether his meeting with Murray might be an attempt to rein in threats about the fiscal cliff.
A senior Democratic aide familiar with the afternoon meeting, however, said it was a regular “check in” and not a scolding session.
The aide said the expiring Bush tax rates and automatic spending cuts were likely discussed among other topics.
Some independent observers have expressed concerns Congress will not prevent automatic spending cuts and looming tax increases, which they warn would shock the economy.
Murray fueled those anxieties when she delivered a stern message to Republican leaders during a recent speech at the Brookings Institution.
“If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle-class families under the bus,” she said.
Senate Republican Leader Mitch McConnell (Ky.) called it “an outrageous ultimatum.”
Democratic lawmakers say the sentiment she expressed is gaining support among colleagues.
“There are more people today than before that say let this all just expire out, but the biggest concern is how will the markets respond and that’s what people are nervous about,” said Sen. Mark Begich (D-Alaska).
Begich does not think the markets would not be shocked if the Bush tax rates expire and spending cuts take effect because they have had ample warning.
“A lot of this is getting worked into the scenario,” he said. “Because more and more people are talking about it, the market is starting to adjust now rather than have a shock in December.”
Some policy experts disagree and fear the reaction would be more extreme.
“My nightmare would be we fall off the cliff and the two parties start negotiating and those negotiations take weeks or even months,” said Rudolph Penner, a fellow at the Urban Institute and former director of the Congressional Budget Office.
“The end result on the economy could be much worse than the scenario painted by CBO,” he added, in reference to the budget office’s estimate that going over the cliff could cause a mild recession.
“You’d have incredible uncertainty and even more disillusionment about how our political system is working,” he said. “There would be quite a reaction on the stock market and bond market.”
Penner said he believes there is “a growing risk” Congress will fail to compromise before reaching the cliff.
Democratic lawmakers say Republicans are to blame for refusing to cede ground on taxes.
“There’s no discussion, no ability to cooperate,” said Rep. Peter Welch (D-Vt.), who believes Democrats should let all the Bush tax rates expire if Republicans do not agree to raise taxes on millionaires.
“The Republicans in the House just passed an extension of all the Bush tax cuts so anyone who thinks that there’s a likelihood that we can sit down and come to some compromise hasn’t been watching what’s been happening,” he said. “There’s no evidence that compromise is within reach.”
House Speaker John Boehner (R-Ohio) and other House GOP leaders sent a letter to Senate Majority Leader Harry Reid (D-Nev.) pledging to call the lower chamber back into session in August if the Senate acted to avert tax increases and defense cuts.
“Congress must take action to eliminate both the threat to our economy posed by the looming small business tax hike and the threat to our security posed by the defense sequester,” they wrote.
Reid responded by urging House leaders to pass a Senate-approved bill to extend income tax rates for families earning below $250,000.
“Right now I would say the momentum is on the side of people saying, ‘OK, lets go over the cliff and put it all back together again next year,” said Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center. “Republicans don’t think they can cut spending any other way and Democrats want to break the back of Republicans on taxes.”
Sen. Sheldon Whitehouse (D-R.I.) said there could be “significant advantages” to letting the tax rates expire and automatic spending cuts take effect.
He said it would give deficit-reduction talks early next year a “real sense of urgency and importance” and “release some of the Republicans from the Grover Norquist oath.”
Democrats see the Taxpayer Protection Pledge authored by anti-tax activist Grover Norquist as a major obstacle to reaching agreement on taxes. Almost every Republican lawmaker has signed the pledge, which requires them to vote against all tax increases.