Timothy Geithner has been meeting key House Republicans. | JAY WESTCOTT/POLITICO Fiscal cliff talks heat up

A jolt of reality is rippling through the Capitol as discussions over how to solve the so-called fiscal cliff are suddenly swinging into action.

Leaders on both sides of the dome, in both parties, are meeting with key Obama administration officials on Capitol Hill, quietly mulling different legislative strategies to avoid massive tax hikes on all Americans. At the same time, lawmakers are beginning to carve out positions for their parties for what will become a months-long rhetorical and legislative war leading up to a series of year-end deadlines.


In one day, Treasury Secretary Timothy Geithner met with both House Speaker John Boehner (R-Ohio) and House Ways and Means Chairman Dave Camp (R-Mich.). The meeting with Camp was directly focused on the year-end expiration of tax rates — widely known in Washington as the “fiscal cliff.” Boehner’s office said he and Geithner spoke about the European debt crisis, but it declined to answer whether tax rates were dicussed.

Federal Reserve Chairman Ben Bernanke and Congressional Budget Office Director Doug Elmendorf spoke with the Senate Finance Committee in a closed, off-the-record meeting. Sen. Max Baucus (D-Mont.), who chairs the Finance Committee, will hold separate calls with Geithner and Camp each week while Congress is in recess.

Meanwhile, House Republican leadership — which is all but certain to control the lower chamber next Congress — has begun privately mulling different electoral outcomes and legislative scenarios they would present, according to multiple sources familiar with the discussions. The Ways and Means Committee will meet Thursday in a rare bipartisan, closed session to discuss unfinished business.

In reality, nothing substantive can be done until Nov. 7, after the country selects a president and decides on the composition of Congress. But the sessions are akin to a crash course — a way for lawmakers to get armed with details before the battle.

“Frankly, if I wasn’t meeting with the secretary, I think there’d be an issue,” Camp said Wednesday morning. “It’s important we try to do our work, and that’s what I’m trying to do.”

The range of scenarios vary widely, and that — in part — explains the flurry of activity. There are several scenarios that Congress could face come mid-November. Mitt Romney has said he wants to extend tax rates for everyone, and President Barack Obama said he would allow rates for married couples making more than $250,000 to snap back to 39.6 percent — where they stood for much of the 1990s.

If the polls stay where they are today, and Republicans keep the House, Democrats hold the Senate and Obama wins the presidency, top aides in both parties insist that tax rates on the wealthy will go up. But those aides, who are involved in planning for the year-end battles, say the legislative gridlock could give both sides the incentive to strike a grand deficit and tax compromise.

On K Street, rumors are flying about what Congress will do during the lame-duck session after the election. Republicans in the House could use this month or meetings in coming weeks to unveil which business tax breaks — called “extenders” — they plan to fight for in the Tax Code, lobbyists say.

In the Senate, Majority Leader Harry Reid (D-Nev.) was preparing to ask Minority Leader Mitch McConnell (R-Ky.) to create a formal conference committee to negotiate tax rates.

Some sides are beginning to show their hand, representing the opening gambit in the lame-duck battle.

Oregon Sen. Ron Wyden said Democrats are curious how low rates could be pushed if all tax breaks were eliminated from the code.

“The interest is mostly in discussing models,” Wyden said in an interview with POLITICO. Some senators say they’d like to eliminate all tax breaks in favor of keeping rates as low as possible

Sen. Kent Conrad (D-N.D.) said lawmakers discussed fundamental tax reform. There’s a recognition, he said, that rewriting the Tax Code would take time — a six-month timeframe was discussed, he said.

“There needs to be a down payment to show credibility,” Conrad said, adding that there needs to be some sort of action before tax reform to show Congress is serious about rewriting the code.

Bernanke told lawmakers that the fed’s ability to support the economy is limited, and urged action of the nation’s dire fiscal situation, Sen. John Kerry (D-Mass.) told reporters. Bernanke also discussed the European debt crisis and his controversial decision this month to further ease monetary policy, lawmakers said.

Some members of the Finance Committee offered general ideas and scenarios but no official plans for avoiding the fiscal cliff were discussed, Baucus said.

It’s not rare for top administration officials to storm Capitol Hill — but closed-door sessions, and the frequency with which they’ve suddenly begun to happen, months before a legislative issue comes to head is unique. Plus, these are meetings with principles, not aides.

The fiscal cliff is really the only legislative issue that’s even registering a blip on the radar of the government and corporate Washington right now. With an election seven weeks away, serious legislating has completely stopped. Nothing substantive will happen before the election — the House is scheduled to be in only Thursday and Friday of this week and will then recess until November.

But the issues are huge. At the end of the year, all income tax rates expire; the nation’s borrowing cap needs to be lifted; the Medicare reimbursement rate for physicians needs an update; and Congress will have to wrestle with automatic cuts to domestic and defense spending.