HONOLULU — President Barack Obama is cutting short his traditional Christmas holiday in Hawaii, planning to leave for Washington this evening as lawmakers consider how to prevent the economy from going over the so-called fiscal cliff.
The White House said Tuesday that first lady Michelle Obama and their two daughters will remain in Hawaii. Obama is expected to arrive in Washington early Thursday, when the House and Senate are scheduled to return.
Here are questions and answers about where negotiations stand:
Where do the negotiations stand now?
It's not clear. Until Dec. 17, House Speaker John Boehner and Obama were edging closer to a deal that would have included about $1 trillion each in spending cuts and tax increases over the next decade.
Boehner declared Obama's last offer unacceptable because it lacked enough spending cuts and then tried to advance his own plan through the House. The House voted 215-209 Dec. 20 to pass a bill that cut $314.5 billion in spending and delayed most of the automatic cuts.
Then, the same day, Boehner scrapped a plan to allow higher tax rates on annual income above $1 million and permanently extend the rest of the income tax cuts. He yielded to anti-tax resistance within his party, saying he didn't have enough votes to pass the bill.
What happens next?
Each side wants the other to act.
Boehner said the Democratic-controlled Senate and Obama should come up with a plan they can send to the House.
Senate Majority Leader Harry Reid, D-Nev., said Boehner should allow a vote on a Senate-passed bill that would extend tax rates on income of married couples up to $250,000.
Obama urged leaders of both parties to work out an interim measure to prevent taxes from rising on middle-income Americans as they work on a more comprehensive package.
What has the House passed?
The House, controlled by Republicans, passed a bill in August that would extend for one year the expiring tax cuts and begin a process for overhauling the tax code. It was silent on extending tax credits from the 2009 stimulus law for low-income families and college students. The House has also passed bills that would delay automatic spending cuts by replacing them with other cuts.
What has the Senate passed?
The Senate passed a bill in July that would extend the tax cuts for one year on income up to $200,000 for individuals and $250,000 for married couples. It also extended tax credits from the 2009 stimulus law for low-income families and college students. It was silent on the estate tax because of disagreements among Democrats, and it doesn't address the automatic spending cuts.
What issues has neither side dealt with?
Neither the House nor the Senate has addressed the expiring payroll tax cut, dozens of lapsed miscellaneous tax breaks, expanded unemployment insurance that's expiring or a scheduled payment cut to doctors under Medicare.
What was Obama's latest offer?
Obama's latest offer reduced his revenue demand to $1.2 trillion from $1.4 trillion, made a concession on future Social Security benefit increases and spared households with between $250,000 and $400,000 in annual income from tax-rate increases.
Isn't this Congress almost over?
Yes. The new Congress elected Nov. 6 will take office on Jan. 3.
What does that mean?
That means the legislative process must start over and all bills proposed or acted on this year will die. Democrats will gain seats in the House and Senate. Republicans will still control the House and have procedural power to block action in the Senate.
Is the debt ceiling part of the negotiations?
Yes. The U.S. will reach the $16.4 trillion debt ceiling this year, and Treasury can use so-called extraordinary measures to extend the deadline until at least mid-February, according to the Congressional Budget Office. Republicans say they want spending cuts equal to the size of a debt-limit increase. The administration wants to remove the requirement that Congress approve future increases.
Does anything have to happen before Dec. 31?
As many as 100 million U.S. households, or two-thirds of the total, may not be able to file their tax returns until at least late March 2013 if Congress doesn't reach an end-of-year budget agreement, according to the Internal Revenue Service. The alternative minimum tax, a parallel tax system once designed to affect the wealthy, is scheduled to affect about 28 million additional households for tax year 2012, up from about 4 million otherwise. Without legislation, the IRS would have to delay the start of tax filing season in January.
What happens if the U.S. goes "over" the cliff?
The Congressional Budget Office projects that the economy would go into recession in the first half of 2013 if the tax increases and spending cuts occur and aren't retroactively resolved.
How will markets react if no agreement is reached by Jan. 1?
On Dec. 21, stocks sank around the world after House Republican leaders scrapped Boehner's plan to allow higher taxes and budget talks stalled. The Standard & Poor's 500 Index retreated 0.9 percent to 1,430.15 in New York. The Dow Jones Industrial Average slid 120.88 points, or 0.9 percent, to 13,190.84.
Is it really a cliff or is it more of a slope?
A slope may be a better metaphor. Most of the effects — the higher income tax rates and the spending cuts — would occur gradually during 2013 and not deliver an immediate economic shock. For example, the Treasury Department has at least some authority to freeze paycheck withholding even if higher tax rates are in place. The IRS said Dec. 21 that it will issue guidance to employers by Monday.
Are there some changes that won't depend on negotiations?
Yes. A 3.8 percent increase on income earned from investments, rents and so-called passive activities is set to take effect Jan. 1 as a result of the 2010 health care law. That means U.S. income tax rates for top earners and investors will go up for the first time since 1993.
Republicans opposed the health-care law and wanted to repeal it if Obama was defeated for re-election. The law also imposes a 0.9 percent additional tax increase on wages next year. Both surtaxes apply to individuals earning more than $200,000 a year or couples earning more than $250,000. An excise tax on medical devices also will take effect.
Information from the Associated Press was used in this report.