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Continued: In Minnesota, voices of optimism on fiscal cliff are few, far between

  • Article by: KEVIN DIAZ , Star Tribune
  • Last update: December 30, 2012 - 10:30 AM

WASHINGTON - With the clock counting down to midnight on New Year's Eve for a fiscal cliff deal, Minnesotans are bracing for what could be a recession-inducing wallop of tax increases and federal spending cuts.

Hopes now rest on a frenzy of negotiations building on talks Friday among President Obama and congressional leaders, who hope to stage the first decisive vote on Sunday night in the Senate.

"It's by no means a sure thing," said Sen. Amy Klobuchar, D-Minn., who was briefed on the White House meeting by Senate Majority Leader Harry Reid. "But it was a positive meeting."

Still, as lawmakers worked behind the scenes, voices of optimism were few and far between. "I am not optimistic we will get anything done," said Rep. Collin Peterson, a centrist Democrat who was working on a farm bill extension as part of a deal. "But I'm going to be ready."

Back home, some were getting ready for the worst.

Heather Evans, a 40-year-old receptionist from Maple Grove, said any fiscal cliff reduction in her weekly $346 take-home pay likely would cut into what's left of her ability to save for retirement.

"It isn't getting any easier either," she said. "I have resigned myself to the fate of working till I am 80. Retiring and living till I am 81, because I won't have any savings."

Unless Congress approves a deal in the waning hours of 2012, Obama administration economic advisers predict that Minnesota's economy, like that of much of the nation, could shrink by an estimated 1.3 percent in the new year. Most of that would be the result from the tax hit to middle-class workers, who could be expected to spend $3.6 billion less in 2013.

One of the first elements to take effect would be the end of the 2-percentage-point Social Security payroll tax "holiday" that saved a typical Minnesota family of four making $87,000 about $1,700 last year.

The new payroll deductions would be felt right away, unlike the tax rate increases, which could take another month to institute.

Given all the indecision, one form of consumer spending is already slowing in Minnesota. P.J. Fanberg, executive director of the Land of Lakes Choirboys of Minnesota, said year-end contributions to nonprofits have seen a dramatic decrease. "I've heard from several regular givers that there is too much uncertainty, that they are more hesitant to give than in years past," Fanberg said. "It's a pretty big deal, as generally a third of all donations happen in December, particularly the last week of the year."

'Posturing'

Even as lawmakers interrupted their traditional holiday break, there was speculation about whether Congress' sense of urgency is part of the fiscal cliff theatrics that have marked the past two months.

"I actually think it's posturing," said Rep. Keith Ellison, D-Minn., who has lobbied against cuts that could reduce benefits to people on Social Security and Medicare.

At the same time, he said, "I do believe before the clock strikes 12, it will be at the 11th hour, we're probably going to pass a bill that keeps the status quo for another month or two."

But it remained unclear whether Friday's meeting at the White House can produce any agreement, even a stop-gap measure, that can get through the procedural thickets of the House and Senate in the little time that's left.

In the wake of this month's aborted attempt by House GOP leaders to offer up a deal letting taxes rise on millionaires -- a "Plan B" that failed for lack of Republican support -- all four Minnesota Republicans in Congress have remained largely silent.

Only Rep. Michele Bachmann issued a statement after the vote, and it said nothing about Plan B.

"America needs to have a positive economic turnaround," she said. "It's time to focus on creating jobs and higher wages."

Minnesota Democrats have been more vocal in pressing for Obama's proposal to let tax rates rise on income above $250,000, a figure that might be raised to $400,000. Rep. Betty McCollum, one of the first to return to Washington after Christmas, called on House colleagues to take matters into their own hands and "pass the middle-class tax cut extension this weekend while allowing negotiations to continue on the other elements of the 'fiscal cliff' that require more time." That would require about 30 Republican votes -- a long shot at best.

Rep. Tim Walz, who has led efforts to force a House vote on a measure that protects middle-class taxpayers, said any 11th-hour deal will need at least some Republicans to come together with Democrats. "This isn't a game," he said. "It isn't poker. It's people's lives."

In the runup to Friday's summit at the White House, Reid accused the GOP of going "radio silent." Minority Leader Mitch McConnell said that Republicans had made offers but that "the phone never rang."

While tax rates have received the most attention, they're not the only sticking point that will be felt back home. A major Democratic demand is an extension of emergency jobless benefits for about 2 million unemployed workers, 12,200 of them in Minnesota.

'Pay more, get less'

On the plus side for Minnesota, the state is a relatively minor recipient of the sorts of federal grants and programs that are subject to "sequestration," Washington-speak for automatic spending cuts.

Federal procurements and salaries amount to only 1.8 percent of the state economy, far below the national average of 5.3 percent, according to an analysis by the Pew Center on the States.

Even those spending cuts, particularly in defense, are subject to revision as Congress confronts the next looming fiscal crisis -- over the debt ceiling -- most likely at the end of February.

Still, as Congress edges ever closer to the precipice, not everybody in Minnesota sees it as the end of the world.

"I can tell you this with absolute certainty," Peterson said. "We will all pay more and get less when this all gets resolved. People in my district understand that. People aren't as selfish as politicians think. If they think that paying a little more and getting a little less is going to straighten out the country, they're for doing it. The only thing they ask is that it be fair."

Kevin Diaz is a correspondent in the Star Tribune Washington Bureau.

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