A meeting between congressional leaders and the president is likely this week. Fiscal cliff deal increasingly unlikely

Nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year.

Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday.


( Also on POLITICO: Poll: Fears of a cliff dive mount)

With the country teetering on this fiscal cliff of deep spending cuts and sharp tax hikes, the philosophical differences, the shortened timetable and the political dynamics appear to be insurmountable hurdles for a bipartisan deal by New Year’s Day.

Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House.

On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year.

( Also on POLITICO: Republican leaders huddle over fiscal cliff)

Senate Democrats are considering fallback options to resolve the crisis, but they appear unlikely to push forward if Republicans decide to mount a serious opposition. The White House, a senior administration official said, is in close coordination with Senate Democrats. Late Wednesday, Reid’s office pushed Republicans to pass a bill to extend tax rates for income below $250,000.

A meeting at the White House between Congressional leaders and President Barack Obama is likely this week, sources said.

The House sidestepped a decision Wednesday to bring the chamber back into session, putting the burden squarely on the Senate, where the stars will need to align for swift action in the next few days. Speaker John Boehner’s leadership team said bluntly: the “Senate first must act” before the House will consider additional legislation to avoid the cliff. So that they’re all on the same page, House Republicans will have a members only conference call Thursday.

( Also on POLITICO: Treasury: U.S. will hit debt limit New Year’s Eve)

For Senate Majority Leader Harry Reid to bring up a new bill, he’ll need assurances from Senate Minority Leader Mitch McConnell not to filibuster it — and not to pressure his members to block it. And Reid will need Boehner’s word that any Senate-passed bill would be scheduled for a vote and could pass with support largely from Democrats, even if it lacks a majority of Republican support.

That scenario seems unlikely right now.

From McConnell’s perspective, the White House will have to pare back its demands for tax increases if Republicans will concede the fight and risk the wrath from the right. And then President Barack Obama will need to give far more on cuts to entitlement programs like Medicare and Social Security in order to get some GOP cooperation on tax rate hikes, Republican officials say.

McConnell almost certainly won’t try to jam Boehner by allowing a bill to pass the Senate that doesn’t have support among House and Senate Republicans, sources say. And Democrats believe that Boehner will have more leeway to cut a deal in the new year once he’s reelected speaker, though the Ohio Republican has said he’s not concerned his perch atop the House has been threatened by his handling of the fiscal talks.

Democrats also have good political reasons to hold out until after the New Year, when the new Congress convenes Jan. 3.

Democrats are slated to increase seats in both chambers in the next Congress — with a robust 10-seat majority in the Senate, and the White House believes it has little incentive to cave to GOP demands ahead of the fiscal cliff.

Over the truncated Christmas recess, neither side reported any headway to resolve the impasse — McConnell’s staff didn’t hear from the White House before Wednesday afternoon. And even if all sides were to suddenly agree to a deal, the Senate could need several days to jump through a series of procedural hurdles, plus the House would have to scramble back to Washington and vote on it — even though there are just a handful of days until 2013.

“What Obama has outlined as minimally acceptable to him doesn’t come within a country mile of passing either the House or the Senate,” said one senior GOP aide. “No negotiation can change the fundamentals.”

Added a Democratic aide: “Unless Boehner and McConnell are willing to buck their tea party members, then I see nothing happening.”

Senators, too, sense the inevitability of ending 2012 with no deal — and Republicans argue Boehner shouldn’t simply accept Obama’s demands as Jan. 1 rapidly approaches.

“I’m not sure why he would have to accept that – the president’s attitude, his stated message was, ‘Accept what I’ve given you or we’ll go off the cliff,’” said Sen. Richard Burr (R-N.C.), the chief deputy whip. “Why is it not OK for John [Boehner] to say, ‘I tried what I thought was doable – and it’s not. So we’ll go off together.’”

House Republican leaders spoke on a conference call Wednesday afternoon, but no decisions were made on a new strategy, according to sources. House Republicans believe Senate Democrats need to pass a bill to avert tax increases before the House acts. If the nation careens off the cliff, they’re trying to make sure Reid shares in the blame.

The hurdles of the deal before the nation reaches the fiscal cliff aren’t just limited by policy differences, but also logistics. House Republican leaders vowed to give lawmakers 48 hours before they need to come back to Washington. As of late Wednesday afternoon, that had not happened.

If members of Congress are told Thursday to come back to Washington by Saturday, they’d face a 70 percent likelihood of snow in the D.C. area, according to current weather forecasts which could snarl airport traffic.

To add to that, there’s an open question what could even pass the House. A bill to extend rates below $1 million didn’t even make it to the floor. Democrats say they’d use the $250,000 threshold. Some Republicans are floating the idea that the Senate should pass a bill that extends rates for income below $500,000, but that idea doesn’t seem to be going anywhere in the Senate.

Since Election Day, both Boehner and Obama have exchanged a series of deficit-cutting offers to avert the $500 billion in tax hikes and automatic spending cuts set to take place in the new year if Washington doesn’t act. But the sticking point remains over raising tax rates on the top 2 percent of wage earners, with Obama pushing to raise taxes on families who earn more than $250,000. The two men narrowed their differences when Obama said he’d increase that threshold to $400,000 and Boehner said he would agree to higher taxes on millionaires.

But Democrats and conservative Republicans rebelled at the speaker’s so-called Plan B approach last week, leaving the speaker weakened and the ball in the Senate’s court. With Obama returning from Hawaii and Senate returning to session Thursday, Democrats hope that Republicans, with their backs against the wall, will pressure McConnell into accepting a bill even if it could jam Boehner.

Indeed, some conservative Republicans candidly acknowledge how tough it would be to vote against a bill to prevent tax hikes on most Americans.

“We are in a topsy-turvy world because everything is going to expire,” said Sen. Rand Paul (R-Ky.), saying it would be “difficult” to vote against a fall-back plan like Boehner’s to prevent most taxes from going up. “If I had to take affirmative action, I would never vote to raise taxes on anyone. Because it takes affirmative action to prevent taxes from going up, things are kind of flipped.”

Still, it appears unlikely McConnell would try to strike a deal that couldn’t win the backing of a large number of Republicans in both chambers. If he did, it would isolate Boehner and risk a conservative backlash against McConnell, who wants to avoid trouble from the GOP base back home as he prepares for a 2014 re-election campaign.

To some, last week’s debacle in the House looked a lot like several of the near-misses from year’s past; most notably in 2008 when the Dow Jones Industrial Average dropped 778 points after the House rejected the initial version of the Troubled Asset Relief Program before the Senate ended up cutting a bipartisan deal to right the country’s finances.

Though others say today’s situation is far different.

“It’s not like TARP because TARP was a very real crisis of immense proportions,” said former Sen. Judd Gregg (R-N.H.), who helped cut the TARP deal. “The fiscal cliff is a self-inflicted wound, which would be really inexcusable to commit on ourselves. It would have nowhere near the impact of what would have happened if we hadn’t done TARP.”

Even though economists warn that a double-dose of spending cuts and tax hikes could send the U.S. back to recession, many lawmakers believe the economy won’t feel the impact right away, giving them added time next year to get a deal. But even then, it won’t be easy to get a deal.

“I think if you can’t do it now, how difficult is it going to be Jan. 1?” retiring Sen. Olympia Snowe (R-Maine) said. “You’re dealing with a new Congress, newly elected senators, new members. It’s a whole new equation. It’s not going to be that easy to put the genie back in the bottle here.”

To that end, the White House last Friday floated a plan it considered “scaled-back” from its original proposal, seeking to extend the Bush-era rates only for those who earn less than $250,000, to extend expiring unemployment benefits and delay automatic spending cuts known as sequestration. There’s also talk of limiting the impact of the alternative minimum tax on the middle-class, though that would only drive up the package’s price tag.

Republicans scoffed at that plan. And McConnell aides say they have yet to see any details, making it impossible for them to assess whether Republicans — or even conservative Democrats — would allow for such a proposal to pass with 51 votes, rather than 60.

Republicans say Obama must take the long view with no deal in sight.

“Remember who the speaker of the House was during the Hoover administration?” Arizona Sen. Jon Kyl, the No. 2 in the Senate GOP hierarchy, said last week. “It was the Hoover Recession. I would think the president and his people would be thinking a little longer range than how the polls would look like this weekend.”

— John Bresnahan and Darren Samuelsohn contributed to this report.