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Fiscal Deal Failure: What's Next If No Deal?

Amanda Martinez |
December 27, 2012 | 8:57 a.m. PST

Executive Producer

Washington has until January 1 to find a solution to avoid going over the fiscal cliff. (Creative Commons)
Washington has until January 1 to find a solution to avoid going over the fiscal cliff. (Creative Commons)
President Barack Obama cut short his vacation Thursday to return to Washington as the fiscal cliff deadline approaches, yet no deal is expected as the clock runs down.

Air Force One departed from Hawaii around 3 a.m. EST as top Republicans in Congress prepare to speak with the House of Representatives on matters unrelated to the fiscal cliff.

SEE ALSO: Obama Back To Business

Hope for a resolution dimmed after both sides engaged in a stalemate over the Christmas holiday. On Wednesday, Speaker John Boehner and other House leaders said they are only willing to address the fiscal cliff if the Democratic-controlled Senate acts first.

If Washington fails to finalize a deal by January 1, what happens next?

SEE ALSO: Lawmakers Skeptical Of 'Fiscal Cliff' Deal As Deadline Looms

Short-Term Deals

CNN explored two possible short-term deals for continued negotiations next year. The first would allow Obama and a new Congress to discuss raising the federal debt ceiling and approve further spending to keep the government funded. A second deal, coming after January 1, would have legislators vote for cutting higher tax rates from the fiscal cliff.

Plan C

Republicans have now moved onto Plan C after last week's Plan B failed. The new plan could impose a number of different plans.

The first option would extend Bush-era tax cuts for those making roughly $500,000 or less. Under Plan B, the current income threshold was $1 million.

An unlikely second option would amend the sequester to automatically cut about $110 billion in spending. Republicans are unlikely to support this option without hefty entitlement savings.

A third option, considered a fall back if all else fails, would require the Senate to pass a plan before any other negotiations move forward. The Senate last passed a budget more than 1,200 days ago and has yet to pass any tax bill for 2013.

Over the Edge

Should no deal be enacted, going over the fiscal cliff would raise taxes for 88 percent of taxpayers by $3,500. For middle-income earners of $50,000 to $75,000, taxes bump up to around $2,4000.

An 8 or 9 percent wave of spending cuts would gradually hit the federal government over a decade, affecting areas including agriculture, law enforcement and the military. Only a few sectors, like Social Security and Veterans Affairs, would remain untouched by such cuts.

A New Recession?

Many economists have warned going over the fiscal cliff would set off another recession. The Congressional Budget Office said slashing spending and raising taxes would reduce the GDP by 0.5 percent in 2013 and push the unemployment rate to 9.1 percent by the end of the year.

For more of Neon Tommy's coverage on the fiscal cliff click here.

Reach Executive Producer Amanda Martinez here.



 

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