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Report: Senators Devising Plan to Avoid 'Fiscal Cliff'

Hemera/Thinkstock(NEW YORK) -- Plans are underway in the U.S. Senate to deal with the political hot potato known as the “fiscal cliff,” a confluence of tax hikes, deep spending cuts and a growing federal deficit that could send the economy into another recession by early 2013.

According to a story in Tuesday's New York Times, a bipartisan group of senators is formulating a three-step process that would avert the expiration of Bush-era tax cuts and automatic spending reductions known as sequestration that would hit the Pentagon particularly hard.  The process would include reducing the deficit by $4 trillion over the next decade by changing the tax code, reforming various entitlements and trimming federal programs.

If that idea flops, the senators have Plan Two, which involves changes to Social Security, more extensive spending cuts and the addition of $2 trillion of revenue through lower tax rates that eliminate or trim deductions and credits.

The final alternative, which is the least desirable, is simply delaying the expiring tax cuts and upcoming spending reductions to give lawmakers more time to arrive at a plan that has wide partisan support.

Much depends on the outcome of the election.  The Republican-controlled House is opposed to ending tax cuts for the nation’s 2 percent of wage earners while Democrats are insistent that no deal is possible unless the wealthy return to the tax rates of the Clinton administration.

Despite their differences, no one wants nearly 90 percent of working Americans to pay more taxes amid draconian spending reductions that would certainly result in the second recession of the past five years.

Copyright 2012 ABC News Radio

ABC News Radio