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Fiscal Cliff Talks at Standstill; Mad Scramble as Deadline Nears; Impact of the Impasse; The Fiscal Cliff Calculator

Aired December 30, 2012 - 18:00   ET


DON LEMON, CNN ANCHOR: Hello, everyone, and welcome. I'm Don Lemon at the CNN World Headquarters in Atlanta.


LEMON: Hey, Ali, it's me and you, tonight, baby --

VELSHI: That's right.

LEMON: -- for as long as it takes. Tonight' it's a CNN special report.

With our nation perched on the edge of the fiscal cliff, we're keeping a close watch on negotiations to prevent economic disaster, Ali.

VELSHI: We hope. We're going to spell out what those talks could mean for all of you watching -- if lawmakers fail to reach a deal, what the fallout is going to be for you, the economy and your wallet.

LEMON: Absolutely, Ali. And tonight, no news is really bad news: fiscal cliff talks are at a standstill, with neither side willing to give any ground at this point.

VELSHI: It's when trying to find a lining around that cloud, if there is one, Democrats and Republicans are still talking. They are still trying to reach a deal to stop those spending cuts and tax hikes that are likely or possible to push our economy back into the recession if we go over that fiscal cliff.

LEMON: Yes, but, Ali, unfortunately, neither side is budging much. You have been reporting on it for the last couple of hours.

On Friday though, President Obama said he was optimistic that the two sides could reach a deal. This morning, he sounded a little less positive though.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If, you know, people start seeing that on January 1st, this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had, had the Republicans been willing to take the deal that I gave them, if they say that people's taxes have gone up, which means consumer spending is going to be depressed, then obviously, that's going to have an adverse reactions in the markets.


VELSHI: And markets are actually going to start opening up in the next two hours around the world. Keep in mind that the Senate is just the first hurdle. Any deal also has to pass the House. We're not even into the Senate yet, and the Republican Speaker John Boehner blamed the crisis on the president today, saying he was the one who has never been able to find a way to say yes.

LEMON: So you are in New York, I'm here in Atlanta, you're in New York. Why don't we get to Washington now? Because our senior congressional correspondent Dana Bash is closely following the negotiations for us from Capitol Hill.

Dana, so where do things stand right now? You have been standing there. You've been talking to people, where are we on this?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Well, the Senate Majority Leader Harry Reid just was on the Senate floor moments ago saying that the Senate will reconvene at 11:00 a.m. tomorrow. The Senate will reconvene at 11:00 tomorrow.

The translation of that is no Senate votes tonight, which is not good news for everybody looking at the calendar, looking at their watch at this point -- not the calendar -- and seeing that it is midnight tomorrow night that everybody's taxes in this country will go up. Simply put, both sides are not at a place where I think that they can come up with anything to put on the Senate floor for a vote tonight. So, they're going to give it until the actual deadline, December 31st tomorrow, to reconvene.

However, Senator Reid did say, Don, that talks will continue tonight, so that is a good sign at least that the talks are continuing, but the fact that they're not voting tonight when everybody expected that this would be the last -- the last threshold tonight is not -- is not so good.

Now, during the afternoon, there were several meetings, actually, two big meetings I should say. The Democrats held one, Republicans held the other at the same time. And I talked to a Republican senator and a Democratic senator coming out of those meetings about where they understand these talks stand. Take a listen.


SEN. JOHN THUNE (R), SOUTH DAKOTA: Obviously, what had happened here between the two leaders in the Senate had broken down, because the Senate Democrats failed to come forward with a counteroffer to the proposal that the Republicans made last night. So, hopefully, the discussion between the vice president and Senator McConnell will get us back on track, hopefully get a breakthrough, and something that we can ultimately vote on yet today or tomorrow, that would overt what we all believe would be an economic disaster.

SEN. CLAIRE MCCASKILL (D), MISSOURI: Most successful businessmen and successful people I've talked to are willing to pay more. And so, it remains to be seen whether the Republicans being driven by a very extreme group of House members will allow the economy to hurt because of their desire to protect multimillionaires in this country. And I think that's what it's going to boil down to.


BASH: So two things to flesh out there, Don.

First of all, you heard Senator John Thune, a member of the Republican leadership, talking about talks between Senator McConnell, the Republican leader, and the Vice President Joe Biden. That is something that started to transpire today. Senator McConnell -- Jessica Yellin reported that he reached out to Joe Biden. That is kind of a sidebar conversation, but a very important one, because the two of them have a longstanding relationship, and Joe Biden was a senator for three decades, and they have actually worked through the bipartisan deals before, like the actual tax cut extension that happened a couple of years ago.

And the second thing, you heard Claire McCaskill, the Democrat, talked about was that Republicans are holding out for taxes for the rich. Now, that is something that we heard the president talk about ad nauseam on the campaign trail for over a year, but it really does seem to be a boiling down to those same arguments, and the same philosophical differences behind closed doors.

And then technically, process-wise, what is going on is that they have to figure out where the threshold is for how high of an income you can raise taxes, pass it through the Senate with enough Republican votes, and more importantly, get in the votes in the House where there is a very big Republican majority, in order to get it to the president's desk.

LEMON: A lot of information there, Dana. A lot of information.

And standby, because even though you said the Senate has gone home, they still maybe more news. Dana will be joining us later. Thank you very much.


VELSHI: All right. Don, we've got CNN contributor and senior political columnist for "Newsweek" and "The Daily Beast", John Avlon joining us from New York.

And, John, you know, remarkably -- so Dana had a lot of detail as Don pointed out. Why are we having this discussion with all of this detail with less than 36 hours to go to the deadline? They have had, and you know how many days to work this out? Five hundred and sixteen days since we first learned about the sequester and 12 years since we first learned that the Bush era tax cuts would expire.

JOHN AVLON, CNN CONTRIBUTOR: Yes. The world's most predictable political crisis and this is a totally self-made problem. Congress set this time bomb. Now, they are scrambling to diffuse it in the last 36 hours of the year.

It is ridiculous. It is a dereliction of duty.

You know, we were told all year that nothing was going to get done during a presidential because it was too contentious. But then this lame duck would be really productive, and finally, politicians would be able to come together and reason together and think about the national interests. Well, that hasn't happened. They can't seem to focus on solving a problem until it's the literal last minute.

Now, the Senate is at home, everything is going to be done tomorrow on New Year's Eve?

Folks should be furious. If this was a business, everybody would get fired, because they're not getting the job done. And the American economy and our very fragile recovery is hanging in the balance.

VELSHI: John, what do you think has to happen? I mean, one of the things that Claire McCaskill, Senator Claire McCaskill was saying earlier to Dana is that the House is being held hostage by a small group of extreme Republicans. We know Grover Norquist may or may not have some influence over those Republicans who have said they can't sign a tax increase.

But in the end, what's holding them back from a deal right now?

AVLON: Well, one thing that's holding them back is that Speaker Boehner doesn't seem to have full control over his conference. He's got around 50 votes on the far right of his party that didn't back his Plan B to try to set a $1 million threshold. At the end of the day, if a deal is going to get done, it's only going to happen if the center of both parties comes together. You're not going to make the votes on the far right. And if you make any concessions that are significant to the Democratic base, you'll have defections on the far left as well.

But that's where things stands right now. That same coalition is what ultimately got us across the finish line with the whole debt ceiling debacle that ended lowering our national credit rating, but here we are again. And there's just not that much time.

If we go over the cliff, Democrats are ready to put forth forward a bill that, you know, save the middle class tax cuts, but it's the dysfunction that's the problem. It's the lack of predictability. It's this addiction of brinkmanship that has folks at home furious and it should.

VELSHI: I got -- so, I'm getting a lot of Twitter activity on this, Don, this is an interesting topic. And this is the chained CPI, right? We've have heard about this already. John Boehner originally proposed this, chained consumer price index.

Now, for our viewers, a lot of people have commented this is overly simplistic. But let's just explain it. It is the inflation measure against which increases to a number of benefits are tied. For instance, Social Security -- so they have a basket of goods and the goods go up and the check goes up by the same percentage.

Now, what chained CPI would do is say that it's going to behave like consumers behave. If the price of beef goes up a lot, people start buying chicken. If the price of chicken goes, they'll buy something else. And that's how we should treat CPI.

Some people like the idea, some people don't. I don't think it's not the worst idea in the world. But you and I talked about this earlier, the problem is: nobody wants anything coming off of their plate.

AVLON: Right. And that's what just from to get-go is a non-starter. The president said consistently everybody is going to have to give a little bit. The essence of a grand bargain, everybody knows the outlines with our eyes closed. To get a grand bargain on deficit and the debt -- which is not what we're talking about today.


AVLON: We're just try to put a patch to not go over the cliff. But everyone is going to have to give. There are going to need to be new revenues. There's going to be -- there'd be some entitlement reform, bending the cost curve, and chained CPI is one of the less painful ways to do it, which is why the president offered it in a hope of larger deal, as recently as a week or two ago.

VELSHI: Right.

AVLON: And then, of course, spending cuts.

But right now, we're not even talking about a grand bargain, we've got the debt ceiling hanging out in two months.


AVLON: This is simply an attempt to avoid political pain, to avoid going over the cliff. We can't get an agreement on a patch with 24 hours left.

VELSHI: All right. John, stay where you are.

Don, this is the problem. This is the problem. It's going to hurt. Something is going to hurt. You can't get out of this with no pain.

We want all sorts of things and nobody wants to pay for it, Don.

LEMON: You two are getting fired up, too. And you know, the people at home are fired up as well.

VELSHI: There are reasons to be, right?

LEMON: Yes, absolutely.

VELSHI: Five hundred and sixteen days since we knew this deadline would come.

LEMON: And now, right at the deadline, they're going home. VELSHI: Yes. That's right. And we're not.

LEMON: We're not. There you go. We're going to be here until who knows?

OK. A stalemate or breakthrough? With hours to go, lawmakers are searching for a compromise. What are the chances of reaching a deal in Washington? We're going to talk with a Democratic lawmaker, just ahead.



UNIDENTIFIED FEMALE: This whole fiscal cliff mess shows how incredibly out of touch you are with the way people really live in this country. You are off in la-la land and everyone is saying that you're acting like a bunch of spoiled brats who are more interested in being right than in doing the right thing and actually representing the people who elected you.


VELSHI: More interested in being right than in doing the right thing.

You know, Don, I'm not one of the guys who piles on with the mob and hates politics and hates Washington, but people are frustrated and I have trouble finding fault in their frustration at all.

Welcome back, everybody, to the special coverage of the fiscal cliff negotiations. Don and I will stick with you while we follow what's going on.

Let's take a look at what's going op at the Capitol. Live pictures at the Capitol -- pretty picture, I hope they are getting work done in there. Lawmakers are -- actually they are doing some work. They are filing in for the roll call. You don't want to leave things for the last minute, right?


VELSHI: No wait until tomorrow night.

LEMON: Ever.

VELSHI: These talks are aimed at preventing us from going over the fiscal cliff, they are not making a lot of progress, though.

The two sides are talking, that's the good news. That's the best that can be said for what is happening on Capitol Hill. Now, if you hoped that the deadline would push the Democrats and the Republicans to compromise on a deal, we are still, Don, waiting for that to happen. I suspect that I have a better chance of growing hair than we have of getting a deal tonight.

LEMON: Yes, probably. I mean -- (LAUGHTER)

LEMON: You are right -- pretty pictures, and that is about it at this point, and nothing pretty is happening right now, because, Ali, in less than 30 hours before we go over the fiscal cliff, and it is not clear whether a last-minute deal is even possible or whether this will be all about shifting blame.

I want you to listen to Senate Majority Leader Harry Reid.


SEN. HARRY REID (D-NV), MAJORITY LEADER: With 36 hours left until the country goes over the cliff, I remain hopeful but realistic about the prospects of reaching a bipartisan agreement. At some point in the negotiating process, it becomes obvious when the other side is intentionally demanding concessions that they know that the other side is not willing to make. We are not there, Mr. President.

So, I hope that we are going to be able to go further. Right now, with the status of negotiations, we are not where can come forward and say we have this for you.


LEMON: Live to Washington now, Democratic Congresswoman Karen Bass of California joins us from Washington.

Congresswoman, talk to us about this standstill right now. Are you optimistic that there will be any agreements made today?

REP. KAREN BASS (D), CALIFORNIA: Well, you know, I am optimistic. I mean I know it sounds like a very short period of time, 30 hours, but that is enough time for a deal to come together, and you know that the basic parameters of that deal, I do believe is shaping up, whether it's $250,000, $400,000, the extension of unemployment, the doc fix, you know, I do think that the basic ingredients of a plan is there.

And 30 hours is time enough for us to get it done. I know that sounds very short, but it isn't.

LEMON: But, Congresswoman, why does it have to come down to 30 hours? And you have been listening to my colleague Ali Velshi.

BASS: I have.

LEMON: There are 514 days to do this.

BASS: I have. Well, you know what? I mean, I understand that, I would agree with it and understand and share that frustration. You know, the Democrats right now are holding a caucus and I believe that the Republicans are meeting as well, and believe it or not, we are on the floor as you speak passing legislation on other matters.

And so, it is a frustration for all of us, but I do believe that 30 hours, we are going to get a deal. It's not going to be the grand deal, but I do believe that it's going to be a deal that prevents us from going over the cliff.

LEMON: We are talking about the frustration of people and that has been the constant theme running throughout this process, the frustration of the voter, especially about Congress and bickering and instead of doing what's best for the country.

Do you feel that on Capitol Hill?

BASS: Sure. I think that we all feel that frustration. But you know, these are really large problems to deal with. And you are dealing with the clash in philosophies.

But I know what we all agree on and we all agree that the taxes should not go up for 100 percent of Americans. I certainly believe that preventing the taxes from going up on 98 percent of the Americans and 97 percent of small businesses is something that is attainable and is something that we can get done. I'm hopeful that that will happen.

LEMON: What are some of the big issues that need to be addressed in the next 30 hours?

BASS: Well, I think that the big issue is that what is the size of the deal we are going to put forward? I think that, you know, you saw what happened earlier today with the Social Security being put on the table, and I'm glad that my colleagues, my Republican colleagues, removed that from the table. I do think that we need to do whatever we can to prevent the tax hikes in this period over the next two days.

But then there are bigger issues that we have to deal with and you know that we probably won't get to sequestration, and so that's still going to be a hammer hanging over our head, the debt ceiling that's still something that is going to be that we have to resolve right after the first of the year, and it would be wonderful to think if we could all come together in the last 30 hours and do the big deal.

That part I don't think is realistic. But I do think we can prevent us from going over the fiscal cliff.

LEMON: Next time I see you and, hopefully, it's within a few hours and we're on the air here. You'll be saying, Don, I'm back because we have a deal, OK?

BASS: And because I told you so.

LEMON: All right. Thank you, Congresswoman Bass.

BASS: Thank you.

LEMON: We appreciate it.

Ali Velshi just reading a social media here and there's someone that just tweeted and I believe I'm with them. They said, "Don Lemon and Ali Velshi, I'm looking to you to keep me calm, because I've just accepted that we are going over the fiscal cliff. Happy New Year."

VELSHI: OK. That's a good point. Look, let's just -- the world is not going to come to an end when it happens.

So, there are two points. This is a really good point, Don. These are two things.

People keep asking me, what will happen to me if we go over the fiscal cliff? Well, two things will happen. One is that you will feel some taxes go up. You feel your paycheck get a little smaller. But that's going to be two weeks to a month before that happens.

The more important thing is what's already happened, Don, and that is that people spent less money over the holiday season. Consumer confidence, which had been going up for a long time, has started to come down. The economy is feeling worse.

And, you know, the congresswoman just mentioned sequester. She said we're not going to get to that. Remember what the sequester will do. It will be $109 billion in automatic spending cuts this coming year, about $3,500 more per year in taxes for the average household, and our unemployment rate, which has been coming down, we are trying so hard on this, could go back up.

This is according to the Tax Policy Center, and the Congressional Budget Office. These are big deals.

LEMON: So you are saying that all of the progress that we've made, the lawmakers in Washington are basically shooting us in the foot.

VELSHI: Yes, we are -- 2013 could be a good year for us, Don. We've got 30-plus months of jobs being created. We've got a natural gas boom in this country. We've got an oil boom in this country. We've got houses coming back. We've got low interest rates.

So much can go right for America in 2013, I hope these folks at Capitol Hill are paying attention. They are doing something, by the way. As the congresswoman said, they're filing in for a roll call vote right now.

It is our last, best, and only hope for stopping this fiscal cliff business.

We are going to speak to a Republican lawmaker in a moment, Marcia Blackburn. But in the meantime, you are watching the special coverage here on CNN -- Don Lemon and me, our colleagues in Washington. We'll be right back.


VELSHI: As Republicans and Democrats are at an impasse, both sides are blaming each other, markets will open up by the way in Asia in the next couple of hours. You might start to see a reaction, but although, I don't know what they have to react to. But we'll have our own markets open in about 14 hours from now here in the United States. Maybe they will react to something, too.

My point is that Congress could ruin a good economy.

For some perspective, let's talk with Representative Marsha Blackburn. She's a Republican from Tennessee.

Representative Blackburn, good to see you again. Thank you for being with us.

REP. MARSHA BLACKBURN (R), TENNESSEE: Good to see you, yes.

VELSHI: I know we have talked about this many times and I know, individually, you are all not to blame, but people are angry, and they do, it does stand out when we say that we did know this was coming, 516 days ago, we dealt with this debt crisis which was probably one of the stupidest and low moments of American political and economic history. And 12 years ago, we knew that the Bush tax cuts were going to expire initially in 10 years, and then in two more years.

What possible explanation could there be to the American people as to why we are all struggling with less than 30 hours to go to come up with a deal?

BLACKBURN: Well, and, first of all, I would say that I am pleased that people are outraged. I'm pretty outraged also when you look at the fact that the Senate has not sent legislation back to us.

You know something, Ali, leaders make choices and choices have consequences. And the choice that the Senate made was to not take up the bills we had sent them. We sent them reconciliation on May 10th.

We sent them the tax extenders -- by the way, that one, HR-8 passed with 19 Democrat votes. That was on August 1st. August 2nd was the defense sequester reconciliation. And then the path way for tax reform went over on September 19th.

VELSHI: Right.

BLACKBURN: Now, you know, all of those have been on Leader Reid's desk.

And my question is why would he let it sit there? When you've got paperwork on your desk, and let's say this was your employee --


BLACKBURN: Paperwork is on the desk, it's marked urgent.

VELSHI: No, I hear you.

BLACKBURN: Some hitting in May, some in August, why not take it up?

VELSHI: I agree. I think there's plenty of blame to go around. But last week, let's just go back a week ago. Let's just go back a week go --


VELSHI: -- when John Boehner came up with what -- and I kept seeing the pictures of John Boehner and President Obama sitting together, very nice picture. I think they are both good guys to come up with a plan, and John Boehner came up with a plan which, you know, Democrats were not going to enjoy the idea that taxes are going to go up on people earning more than $1 million a year. That was not going to be acceptable for most Democrats. John Boehner couldn't even get pieces of his own conference, his own caucus to agree to that.

So, I'm not sure that it's fair for Republicans to somehow suggest that we're here because of Democrats. I'm not saying Democrats had nothing to do with this. But you guys can't get your own act together -- the Republicans in the House can't get their act together.

BLACKBURN: Well, we are here as inaction. Now, here is the deal on that. What the president was wanting to do was generate enough revenue to cover government for about eight days, seven or eight days. So, what do you do with the other 350-plus days that are leftover?

You cannot continue to run trillion dollar deficits every year, because we are already at $16 trillion in debt. What we have is a debt crisis. And quite frankly, I think that to our children, to our grandchildren, it is absolutely immoral that all of this would be kicked down the road, kicking that can down the road, and then heaped over on their heads.

VELSHI: Well, it's a little bit immoral that this is happening today. Forget our the grandchildren, how about us?

BLACKBURN: Listen, I agree with you, and well, that is why you have got inaction that you are looking at. HR-8, Ali, that was a bill filed in January 2011 by the speaker. The Senate knew it was coming to them, and the House knew it was coming to the floor, they worked the bill, they got bipartisan support. That would have extended tax reductions for everybody.

VELSHI: Right. All right.

BLACKBURN: And it had bipartisan support. So, the thing is that it is inaction, and quite frankly, I hope that my colleagues in Washington that all of us learn a lesson that you cannot kick the can down the road. You have to put these tough issues on the table and you have to deal with them.

VELSHI: Right. But you'll agree with me that if we come to some deal in the next 30 hours, either we don't come to one or we come to one that is actually going to involve kicking the can down the road, because at this point we're out of time for anything more significant than that? Right?

BLACKBURN: Well, the thing is, you can't do something that generates revenue and not address the spending. When you are running a $4 billion a day deficit --

VELSHI: Right.

BLACKBURN: -- you cannot do something that is only revenue and, you know --

VELSHI: Well, that's not -- BLACKBURN: And you and I agree that the entire budget process ought to be looked at and overhauled.

VELSHI: Absolutely. And the entire tax process, and lots of work to do. Let's just hope once we get pass today and tomorrow, we actually do that work in a more timely fashion.

Congresswoman, good to see you again. Thank you for being with us.

BLACKBURN: I agree with you. Good to see you. Thank you.

VELSHI: Democrats and Republicans on Capitol Hill, as you can tell don't see eye to eye on these things.

Can our CNN contributors do any better? We'll talk to two of them about the fiscal cliff just ahead.


LEMON: We are back.

Ali, if people only knew what happened during the breaks on this show.

VELSHI: I was not planning -- in the long term planning, I was expecting to be somewhere traveling. So I wasn't actually planning to be here, so everything is a little upended. So, as a result, I've got my dinner here. I've got little Chinese food and little coke zero to wash it down.

LEMON: I said, Ali, you have all of that greasy stuff and then you have a Coke Zero.

VELSHI: Zero calories.

LEMON: You said it's a good thing I'm charming. You're charming.

VELSHI: It's a good thing I'm charming, because I'm not really winning anybody with my looks and tight body.



LEMON: Back to the news.

VELSHI: Back to the news.

LEMON: Let's get everybody up to the speed on the talks to prevent the looming fiscal cliff, shall we, Ali?

VELSHI: Yes, it's not looking so good. Surprise, surprise, Democrats and Republicans are not budging from their positions. Here's a live picture. There's actually something going on in there. The lights are on at Capitol Hill. Optimists hoped a deal could be voted on as early as tonight. But we now know the Senate will not vote on anything to do with the fiscal cliff before tomorrow. One sign of how desperate it's become, Vice President Joe Biden has joined the talks, speaking to a colleague from his Senate days, Republican minority leader Mitch McConnell, whom you see here, the head of the Republicans in the Senate, but what the GOP wants it probably won't get. At least both sides are still talking, even if they aren't necessarily listening to each other.


REID: The Republican leader has shown absolutely good faith, it's just that we're apart on some pretty big issues.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: I am willing to get this done, but I need a dance partner.


VELSHI: All right. Both Republicans and Democrats agree that there need to be changes to the U.S. tax code. That's just one of the thorny issues facing lawmakers who are making last ditch efforts to avert going over the fiscal cliff.

Let's go to Jeanne Sahadi in New York. She's a senior writer for, probably the person most immersed in the minutia of all of the stuff that's going on.

And that's the problem, Jeanne. You kind of know the stuff that has to happen. So we've got this big political headlines about tax rates going up and this and that. But there are actually a lot of back channels, people have been discussing this for a long time. What's your take --


VELSHI: A long time. First of all, real tax reform is a process that would take two to three years at best probably. That's not certainly happening tonight, that's not going to be worked out. What's the likelihood of a deal? What would it look like from a tax perspective?

SAHADI: A tax -- which one? A tax reform deal or --

VELSHI: No, no, no. The fiscal cliff deal. The whatever we might get -- what might they be arriving at in the -- in the next day or so?

SAHADI: Well, here's what we are hearing. And I will believe none of it until I see it.

VELSHI: Right.

SAHADI: Rates will go up for high income people, we don't know how high income, President Obama wants it $250,000 as the threshold, Republicans are pushing for more than $400,000. You know what, it's splitting hairs at a certain point especially now that we're in the 11th hour or less than 30 hours away from the deadline.

So we'll probably see that, we hope that they're going to put an AMT patch in that will protect the middle class from having to play the wealth tax for tax year 2012 this year. They didn't do that yet. We are totally running out of time on that one.

We have a bunch of tax extenders for businesses and individuals. They've expired, will they extend them again? I don't know. We haven't heard a lot about that. And the payroll tax cut. That will almost certainly expire. No one has been talking about that. So your first pay check in January will be smaller if only for that reason regardless of what they do about income tax rates.

VELSHI: Can you give us a real -- and you're so good at giving these very straightforward, understandable explanations to the 99.8 percent of society who are not accountants, the AMT patch. First of all, if it doesn't go into play, it will affect you for your 2012 income, not even your 2013. So that's something that matters immediately.

SAHADI: Right. In effect, the IRS came out, I think it was last week and said, hey, lawmakers, guess what, if you guys don't do an AMT patch by December 31st, we're going to probably have to delay about 100 million returns and that means delaying refunds for those folks, and about 30 million people will end up having to pay this AMT, normally it's about $4 or $5 million.

VELSHI: Well, we're going to --

SAHADI: So that's how ridiculous this is.

VELSHI: OK. And that was a tax that was initially designed to make sure that the richest -- the highest income earners pay at least some minimum tax and a whole lot of people who are not high income earners are going to get hit by this, so there's a lot broken with this tax code.

OK, Jeanne Sahadi, senior writer with CNNMoney.

I would say, Don, by the way, for all of our viewers who have been casually watching this and hoping some thing is going to get fixed, go to, and look up Jeanne Sahadi's stuff. There's a lot of really good, understandable detail about what exactly is at stake. It's not easy for us to just digest it into a couple of minutes. It's a lot of stuff.

LEMON: And Jeanne said it's the 11th hour. It really is the 11th hour, Ali.


LEMON: And we're wondering why is it have to be a scramble as the fiscal cliff is approaching. Why do we have to do it right now? What will it take to hold Congress' feet to the fire finally? I mean if it -- it haven't been held in a fire now.


LEMON: How so when people start feeling the pain? If no deal is reach. That's the question. I want to bring in now -- Ali, let's bring in both sides of the political aisle Republican strategist Ana Navarro, she's in Miami, Democratic strategist Maria Cardona in Washington.

Welcome the both of you.

Thanks, Don.

LEMON: Ana, why are we here right now? Why are we sitting here talking about this right now with the Senate gone home, Congress still in there working, you know, the light is on, but few people are at home. Why are we doing this?

ANA NAVARRO, CNN CONTRIBUTOR: There is no good explanation. There's definitely no justification and no excuse for this. This is like, Don, when you at the beginning of the year, when you are -- when you are in school at the beginning of the year, you get assigned a big project, and you leave it to the last night. When I used to do that my parents used to punish me. If kids were behaving the way these Congress people are, they've be all in time-out. If it was the private sector, they'd all be fired.

There's absolutely no excuse. And the only solution I would tell you lies with us, the American people, and with us, the voters. Demanding that they start working together. And actually coming up with something. We cannot continue having these spectacles every few months. It's like making sausage.

LEMON: Can we talk about the optics of this, Maria? There are many people who say, you know what, I hear you guys up there, guys, Don, saying, you know, this is a Republican and Democratic problem, but we are here because the Republicans won't play ball.

MARIA CARDONA, CNN CONTRIBUTOR: Well, I mean, you know, it's easy for me to say that and I actually do think that politically the Republicans will suffer more if this doesn't get done. I mean the Republicans lost the election, a big reason was because the middle class Americans and normal everyday people didn't think that this was a party that understood what they were going through.

And if they are now seen as being the ones that are making taxes go up on everybody because they want to protect taxes for the rich, that's not going to be politically good for them. But at the end of the day, this isn't good for Democrats either, so I don't think that either Democrats or Republicans want us to go over the cliff, because while again Republicans will be blamed more, Democrats aren't going the come out smelling very nice on this either, because everybody, everybody, Don, you, Ali, Ana, me, the American people are frustrated that we are waiting until the 11th hour for this to get done.

LEMON: Ana, I'll let you respond to that because I know you want to.

NAVARRO: No, listen, I absolutely agree, it's not everyday that Maria and I agree, but we agree on this one. I think everybody is going to look bad. The country is going to look back. The economy is going to look back. Tomorrow we've got the opening of markets and it's not going to be a pretty picture.

I can tell you that people looking at us from outside of this country can't understand this circus-like spectacle that we're putting on. It makes everybody, you know, anxious. It gives everybody uncertainty. It is not a good picture. It's not something that we should be doing on the December 30th with the days ticking down.

And let me tell you something else, if we don't get to a deal, just remember, that January 3rd, we've got a whole new batch of Congress people and senators swearing in who have not even been part of the negotiations.

So it is really -- it is very much a, you know, an urgent time frame that we get something done. It's not going to be a good solution, its not going to be a long-term solution, but we have to continue demanding a long-term solution to address these very serious problems.

LEMON: Yes. Can we get Ali in here as well? Because I think this is good. I think -- you know, since we're here, all of us, someone offers something very good on social media and says context, just curious about the yearly family income of the talking heads offering opinions regarding faults and solutions, and also as well, the lawmakers as well, because when you think about the average salary of the -- of an American worker, right, and you think about all the people on Capitol Hill.


LEMON: Who are doing this, and all of us were sitting here, and, you know, granted we do pretty well and we're speaking for the American people?


LEMON: You were talking about frustration, Ali, go. What do you -- what do you say to that?

VELSHI: Well, listen, we are in an economy where if you -- if this -- if we went over the fiscal cliff totally, in other words, no patch, and nothing got fixed in the next few weeks. Now look, I don't think we're going to do that, but let's say we did. The hit to the average family could be as high as $3500 a year. It might be as low as $2500.

LEMON: That's a lot of money.

VELSHI: But it could be $3500. But not only is that a lot of money, we're in an economy where, by the way, that's real money to people. I mean, those are real expenditures, but the follow-up effect of that is actually much bigger. So the family might be able to withstand having $3500 less, but people buy fewer things, the economy slows down, then people lose their jobs.

Now you can maybe live with $3500 less a year, you can't live without a job. So that's the more serious effect. The more serious effect then than what it does to my paycheck in a month is whether this slows down the economy. We are not going very quickly in the U.S. economy, but we're moving forward.

People, that's where it hits you when it's not your fault.

LEMON: For now.

VELSHI: And that's what people are tired of. Yes, that's what people are tired of.


VELSHI: Because in 2008 something happened to the economy that was nobody's fault. It was created by people on high and now we're doing the same thing. We're getting into something where -- what did I do to deserve this, the average American is thinking to themselves.

LEMON: Is thinking. And then they're sitting here watching us and saying, you know what, you guys sitting on television and they think our salaries are inflated in anyways and the pundits and --

VELSHI: Well, it's fair to say it is -- it's higher than the average American's salary and a whole lot higher than the 16 million people who don't have jobs in this country.

LEMON: That was very good. That was a very good analysis.

NAVARRO: Yes, but that's why --



NAVARRO: What you guys are doing tonight are putting the people on the street or putting those videos, those Facebook videos and putting the social media reaction, I think, is so useful, because the people in Washington need to hear from the everyday American.

I was at Target today, and I got approached by three different people who recognize me from CNN asking about this. This is not happen -- this did not happen five days ago or a week ago. People are now beginning to get real worried.



NAVARRO: And folks in Washington --


LEMON: That's going to -- that's going to have to be --

CARDONA: And I agree.

LEMON: That's going to have to be the end, though, guys.

CARDONA: And I agree, the American -- the American people are the ones who have to really chime in here. They're the ones with the power.

LEMON: We have the producers saying, move it along, move it along.

Thank you, Maria. Thank you, Ana.

Ali, take it away.

VELSHI: All right. Well, this fiasco is being felt on main street, it's being felt in Capitol Hill and as well in the investment community on Wall Street.

I want to talk to you about how all of this may affect the markets and the economy and I'm not talking about this for the fat cats, I'm talking about this because of your 401(k), your investments. We'll talk about that on the other side.


VELSHI: As Americans are making themselves heard about the fiscal cliff, the impact of this is daunting for the economy and for the markets. I want to bring in Kenneth Policari. He's a trader on the New York Stock Exchange. A very old friend of ours.

Ken, I want to just tell you, it's 14 hours before U.S. markets open and we have -- we look at something called futures which give you an indication of how markets are going to open and about -- you know, the bell rings at 9:30 in the morning, Eastern Time, and at about 9:20, the futures are accurate.

I'm not sure how accurate they are 14 hours out, but we're actually indicating a positive open on the -- on the S&P 500 tomorrow. Can you explain that to me?

KENNETH POLICARI, NYSE TRADER: Right. Well, what is it? Is it just slightly positive or what? Is it really flat --

VELSHI: Just slightly -- slightly positive.


POLICARI: Well, first of all, I think there's a couple of things going on. I think that half of Asia, I think, is closed today, right? You had Hong Kong and China open.


POLICARI: And Australia is only open half a day. So you're going to get kind of a muted response, but don't forget, you really have -- we really have one more day of this, right? There's not going to be a deal tonight, because it's not dramatic enough, so they've got to let it go another day. So the markets might get a little bit of a breather, but trust me, as tomorrow goes, and as trading get started, as the day wears on and appears like we're getting nothing, you will start to see pressure on the market as we move into the end of the day.

And like I said on the prior show, if we get a band-aid, I think that's worse than getting actually letting us go over the cliff.


POLICARI: Because I think if we go over a cliff, then there's clarity, right? Everyone knows exactly what happens, taxes go here, spending goes there. The only thing that can happen after that, it can only improve because legislators will then talk about cutting taxes and raise some spending.

VELSHI: Right.

POLICARI: And they'll be able to stand up and say, look, what a great job we did, and pat themselves on the back. If we get a band-aid, all we've done is cause more confusion, we've kicked the can down the road, we've led it wide open to another fight, another debate come January right when we get the debt ceiling debacle hitting us in the face on January 31st.

VELSHI: Ken, you are not paid to sit it out. OK? You have to go and trade every single day no matter what happens, even if you know it's going to be a bad day tomorrow in the markets, you don't actually stay home. So here's my point, people have been asking, what do I do with my money? What do I do tomorrow morning? Do I put in -- do I get out of stocks? Do I put my money in cash? Do I go -- what do I do?

POLICARI: OK. Ready? So it depends on -- you have to really decide who you are.

VELSHI: Right.

POLICARI: Are you someone that's putting money away for the long term? Are you someone that's going to invest your money in your IRA and leave it there for 10, 15, or 20 years? You want days like that or coming up in terms of the volatility, because all in all, I don't think there's going to be a market crash, by any sense. I think there's going to be pressure on the market. It's going to re-price the environment. It's going to re-price the risk in the market at the moment. So prices will get cheaper.

But if you're a long-term player, you want these days to happen. You want to start putting money to work in the market as it gets a little bit cheaper. I -- my sense is there's a ton of money out there on the sidelines, people are talking about 2013 being kind of a turnaround year.


POLICARI: With better days ahead so you want to -- if you're the long-term guy, you want to take advantage of the weakness in the market.

VELSHI: Yes, and you know, Kenny, I just want to remind people with this Dow, the S&P 500 which looks like a lot of people's 401(k)s up more than 12 percent in 2012. So for all of that nonsense in Europe, for all the fiscal cliff, for all of that, the market is actually better than its long-term average in 2012. And I keep saying that if Washington does not mess it up, 2013 could be a good year for America.

POLICARI: And I think you're absolutely right. And so what we might find is we might hit some volatility in January, it might kind of a rough month, but you know what, don't despair, because I think as we move on -- listen, we will get through this. This is not the end of the world, but the market will have to re-price the risk based on what they see.

After that, then the market will start to make headway. We're going to see some turnaround in China, right. We're seeing some turnaround there already. We're seeing green shoots here in the United States. The only thing we're really have to worry about is what's going on in Europe. They are in recession now. Are they going to start to come out? And if they do, that's only going to add to the story.

VELSHI: All right. Kenny, I love your optimism. You've seen many of these things come and go. This is absolutely useless and ridiculous that we're in this position.

POLICARI: Absolutely.

VELSHI: But as you say, it is probably not the end of the world.

All right. Ken Policari, I will be seeing you tomorrow morning. We're going to talk before the markets open again.

POLICARI: Yes, you will.

VELSHI: All right. So many numbers to process in these fiscal cliff talks but how would it specifically impact what you pay in taxes. We're going to break it down with the fiscal cliff calculator.

You're watching CNN with Don Lemon and yours truly.



UNIDENTIFIED MALE: My New Year's message to Washington is to secure the blessing of Liberty to ourselves and our posterity. Invest in our children, in our schools, and in our communities. Raise taxes on the rich and eliminate corporate loopholes, and do not cut Social Security or Medicare. Thank you. Happy New Year.


LEMON: And so how will not reaching a deal specifically impact how much you pay in taxes? The Tax Policy Center has a tax calculator. So it lets you estimate how your family could be affected.

Josh Levs is here in Atlanta breaking down the different scenarios.

Josh, the only thing you can't say is I'm going to start a drinking game. Don't say kick the can down the road.

JOSH LEVS, CNN CORRESPONDENT: No, in fact, I was actually not going to use that phrase. I've been covering this at today as well, and doing everything I can to avoid saying phrases like that. It may make a serious situation turn a little bit trite.

Folks, I will tell you this. The figure that a lot of people know if you know any figure is $2,000 because President Obama says it a lot. The average family will end up spending $2,000 more if the fiscal cliff is not averted.

Now let me show you something. You can find out how it would impact you directly using this. The tax calculator from the Tax Policy Center. Very impressive. There's a lot of numbers that you have to plug in to make sense of it. Obviously it can't be exact, it can't be precise, it can't predict the future, but I want to show you some examples here that we have pulled out.

So let's go to this graphic here that just has a few of the examples we're showing you here. It would take, for example, this scenario, married with no children under the age of 65. If a couple in that instance is making about $57,000 a year, then according to these calculations, that couple would end up spending $2,262 more on taxes.

And if that couple is high income earning, about $106,000 for the income between the two of them, you're looking at more than $4,200 extra in taxes. A good example there of what we're looking at.

Now I want to show you another example because there's something that might surprise you in the middle of this next one. I want to go to these numbers fast. Take a look here. If this is a couple that's married and has two young children, right? If the couple is making about $33,000, they're going to see their income drop by about $3700. They'll pay that much more in taxes. Now a middle income family at about $75,000 there would actually be slightly less affected. Would end up paying about $3300 in taxes and a high income would pay a little more than $7,000 more in taxes.

Now come back to me for a second. The reason that you're seeing them, this is important to understand, you know how every year at tax time we report to you there are a lot of people that don't pay federal income taxes. Well, what happens is some people are not earning enough money that ultimately they owe those taxes, but people who are saving during that time, even getting money back from the federal government, will find out they're getting less money back from the federal government.

So that's why in some cases some of the lowest income earning people will be impacted even more than some of the people in the middle because they will find that they're getting substantially less back from the government.

We're going to bring you some more scenarios. The link to this is up at my Facebook and Twitter @joshlevsCNN, and I encourage you to go there right now. See how it would affect you and use that to influence your understanding of what happens if we do go over that cliff -- Don.

LEMON: Josh Levs, not kicking the can down the road. LEVS: No. Not once.

LEMON: Thank you very much. Appreciate it.

LEVS: You got it.

LEMON: You know it is a story you have to see to believe. Ahead a mom and her kids reunited after nearly a week, all thanks to a CNN viewer.


LEMON: We have a little break here but we're going to get back to the Hill and the negotiations in just a minute but first another story that we're following for you. And it unfolded right here on CNN.

Teresa Nash came on our show making a desperate plea for help to find her two missing boys. A nationwide search was under way to locate Ben and Henry Cleary. They were on a holiday trip with their father in Tennessee. They were supposed to return to Georgia December 24th but they never came back. And during our live interview last night Teresa sent a message to her son.


THERESA NASH, MOTHER OF BEN AND HENRY CLEARY: Children, please call mommy. You know my phone number. I have taught you how to do it. If daddy doesn't have a phone, you can ask anybody you see. Everybody you see has a phone. You can ask anybody.

Remember my number and call mommy's number. You can ask people at stores. You can ask people at the gas station. You can ask people anywhere you see. You need to call mommy and have a phone. They will help you. Anybody will help you. Call mommy.


LEMON: Well, just minutes after that interview, the boys called their mother, told her that they were safe, and that they were in Austin, Texas. Police there tell CNN that someone at a hotel recognized the boys from the Amber alert and our program and they contacted police.


WUTHIPONG TANTAKSINANUKIJ, PIO, AUSTIN POLICE DEPARTMENT: The law enforcement community nationwide, we take these Amber Alerts seriously when it deals with kids, with children. This is one of those cases that it was activated and it worked, and we're thankful for that. The other thing component to this is we had a citizen that paid attention to this, actually saw it on CNN news, recognized the kids on there, recognized the kids here at the location, and in turn called 911, and that's what prompted our response out here.


LEMON: Well, Teresa jumped on a plane to Texas and was reunited with her sons just hours later.

Tonight at 10:00 p.m. Eastern, Teresa and her sons return to our show to share their story. Make sure you tune in.

The next hour of our special coverage begins right after a quick break.