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With fiscal Armageddon in sight, who's got the leverage?

If the federal government is headed toward fiscal Armageddon at the end of this year, which side will be in a stronger bargaining position, President Barack Obama or congressional Republicans?

Related: Bill Clinton, Paul Ryan headline fiscal summit talks

Some analysts have warned that the expiration of both the current income tax rates and the lower Social Security payroll tax rate -- on top of automatic spending cuts mandated by last summer’s Budget Control Act and the government reaching its borrowing limit -- could cause a fiscal shock shortly before New Year’s Eve.

Although nothing prevents Congress from enacting new tax rates, altering spending cuts, and increasing the debt limit before voters cast their ballots on Nov. 6, the reality is that most of the tax and spending votes to be held before Election Day will be "show votes" intended to put members on the record, rather than votes on bills which have a chance of being signed into law.

Will a deal be done in the lame-duck session after the Nov. 6 election, or sometime in 2013? Or is it more realistic to say we’re simply in the midst of a series of deals, some shorter, some longer, as has been the case since Obama took office?

Jonathan Ernst / Reuters

Rep. Paul Ryan, R-Wis., participates in an onstage interview during the Peterson Foundation 2012 Fiscal Summit May 15 in Washington.

At the third annual fiscal summit sponsored by the Peter G. Peterson Foundation Tuesday, House Budget Committee chairman Paul Ryan said “in the lame-duck you’ll see something to make sure we don’t have a train wreck” -- a stopgap agreement to fend off tax increases and severe spending cuts, but not “a grand bargain that will fix everything once and for all.”

But Rep. Xavier Becerra of California indicated that at least some Democrats see the expiring tax rates as powerful leverage for their side.

Becerra made the case at the fiscal summit for just allowing the current income tax rates to expire on Dec. 31, which would mean they’d revert to the higher levels of 2000.

“We could save over $7 trillion in the deficit if we allow the law to take effect” and then Congress could “tweak” those tax increases in 2013 (when Becerra and other Democrats hope they’ll be in the majority) – presumably so that they would not affect lower-income people. Such an outcome could achieve significant revenue increases and lower budget deficits in the years ahead.

Most Americans “aren’t going to be hit as hard” by allowing the tax rates of 2000 to take effect on New Year’s Day, Becerra said, as they would be if the interest rate on student loans went up.

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Tom Brokaw speaks with former President Bill Clinton at the 2012 Fiscal Summit on May 15 in Washington.

House Speaker John Boehner saw leverage differently in remarks which he made to the fiscal summit in the afternoon. He said he’d seek at least one dollar of spending reduction for every dollar increase in the debt limit. He said approaching the debt limit was “an action-forcing event” that should lead to spending cuts.

“If that means we have to do a series of stop-gap measures -- so be it,” he said, “But that’s not the ideal."

To some degree, the day on which the debt limit is reached will be up to Treasury Secretary Tim Geithner. He told the fiscal summit that the Treasury has accounting and cash management tools it has used in the past to stave off reaching the debt limit.

“Those tools will probably take us into the early part of 2013,” Geithner said.

Thus the moment at which the government reaches its borrowing limit may not be exactly the point at which the current tax rates expire on Dec. 31, 2012 and when the automatic cuts in spending take effect a couple of days later.  

It was not clear whether any these comments will reflect the reality of the closed-door negotiating positions of those who must figure out after the election what to do about expiring tax rates and the debt limit.

Boehner’s call for one-for-one spending cuts to match another debt increase prompted Rep. Chris Van Hollen, D- Md., top Democrat on the House Budget Committee, to tell the summit it was "absolutely reckless" to allow the debt limit to be reached. He dismissed Boehner's one-for-one cut spending/debt increase concept as "trying to draw lines in the sand, rather than trying to reach compromise.”

Van Hollen said, “You could envision a number of extensions” and “interim agreements” in the current tax rates or to avert automatic spending cuts -- and agreed with Ryan that the lame-duck session wasn’t the time to clinch a comprehensive tax-and-spending deal.

Despite the cloudy forecast for what might happen during a lame-duck session of Congress, there was a bipartisan agreement at the fiscal summit that the nation faces a potential debt crisis in the years ahead.

The Congressional Budget Office has already predicted that interest payments on the federal debt will exceed defense outlays by 2019.

Since 2008, the federal government has benefited from extraordinarily low interest rates which have helped lighten the burden of servicing the federal debt, which in gross terms is now equal to the gross domestic product.

Ryan warned against austerity being forced on the nation by the bond markets. “We don’t want to have a situation on our hands where the credit markets have turned on us, and then we’re doing crisis management,” Ryan said. “Then we’re doing cutting across the board, cutting retirees that have already retired ... Slowing down the economy, raising the youth unemployment rate, that’s what austerity is.”

The summit also received a similar warning from former president Bill Clinton who said that as soon as the nation’s economic growth rate picks up, “interest rates will go through the roof, the cost of financing the deficit will be staggering, and the private sector will be screaming for affordable credit.”

Clinton called for Congress to enact a deficit reduction plan immediately and design it to automatically take effect once GDP growth reaches 3 percent.  

As you’d expect from a man who has been involved in Democratic Party politics for more than 40 years, Clinton bashed Republicans for what he portrayed as unreasonable opposition to tax increases.

He slammed Richard Mourdock, who last week defeated Sen. Richard Lugar, R- Ind., in the Indiana primary, for appearing to reject compromises with Democrats.

“He said, ‘I am totally against any compromise, our world views are irreconcilable’… If that were the view, there never would have been a Constitution,” Clinton said.

A few hours later, Ryan agreed with Clinton on Mourdock’s apparent unwillingness to compromise: “I just don’t agree with that,” said Ryan when event moderator Judy Woodruff paraphrased Mourdock’s comments.

But more provocative was the critique Clinton directed at members of his own party.

Democrats can balance the federal budget better than Republicans can, he said, but Democrats will spend so much on health care for the Baby Boom generation “that we will be holding on to the past too much,” he said.

Necessary investments in the future are being squeezed out by the growth of entitlement spending, he said.

“You simply cannot spend all your money on the present and the past. We may have a better balanced budget plan than Republicans do… but it is still too heavily bogged down in health care and retirement costs for the Baby Boom generation,” he said.

Clinton also warned Democrats to not imagine that they could raise all the revenue they want exclusively from upper-income people --and not from the middle class.

Alluding to his own wealth, Clinton said, “You could tax me 100 percent and you wouldn’t balance the budget,” he said.

If middle-class wages were growing, Clinton argued, middle-class Americans would not mind an income tax increase.