Washington is again focusing on the so-called “fiscal cliff” nowthat the election is out of the way, and there is strong evidenceof a “grand bargain” being agreed to by Congress and the WhiteHouse by year-end in order to avert a dramatic impact on theeconomy.

President Obama signaled support for a compromise in acceptingMitt Romney's concession early Wednesday, and on Wednesday, bothSenate and House leaders made statements implying that talks areunderway.

The issue boils down to the fact that, barring action, $668billion in total spending cuts and tax increases will take effectJan. 1, constituting 4% of total gross domestic product.

Also critical is that estate-tax policy will revert to 2001levels if there is no action. If Congress fails to act, 14.7million U.S. households would have a potential estate taxliability, according to LIMRA.

The consensus of congressional staffers is that there will be aone-year deal to avoid the huge year-end impact.

The sources say that this deal would include an agreed-upondeficit reduction number, including an agreement for tax reformthat brings in revenues.

One industry lobbyist says part of the package would preserveall or some of the Bush-era tax cuts, part of it presumably woulddeal with raising the debt ceiling, and part could addresspayroll-tax relief and the 29% decline in payments to physicians asof year-end—the so-called “doc fix.”

This scenario envisions parts of the healthcare-reform law“coming into play here as well,” perhaps as a short-term delay onexchange subsidies to allow states more time to get them up andrunning, according to the lobbyist.

Another lobbyist explains that “the idea is to avoidsequestration, cut a deal and tee up deficit reduction and taxreform in regular order next year.

“Anything less than a one-year deal, at least according to Rep.Dave Camp, R-Mich., chairman of the House Ways and Means Committee,doesn't work,” this lobbyist said.

“Without Congressional action, estate taxes will go to a $1million exemption and a 55% top rate (instead of a $5.1 millionexemption and a 35% top rate),” says Diane Boyle, vice president,federal government relations, for the National Association ofInsurance and Financial Advisers.

“NAIFA supports meaningful, sustainable estate-tax reform thatprovides certainty for clients to do their planning and takeaction,” she said.

“Unfortunately, there is enormous uncertainty in the politicalenvironment and even greater uncertainty regarding the details ifCongress does act,” Boyle says.

Chris Morton, vice president of legislative affairs for theAssociation of Advanced Life Underwriting, sees two potentialscenarios.

One involves the consensus view voiced above: a frameworkagreement for approaching deficit/tax reform.

The second scenario Morton sees is, “Because most of the game[favors] President Obama in terms of the expiration of the Bush taxcuts and in terms of the reversion of the estate tax to $1million/55% top-tax rate, etc., he may have leverage tonegotiate.”

And, Morton says, “If there is pressure from the businesscommunity to get a deal, not just to punt, but to get actualresolution to some of the issues, then you may see the top marginalrate expire and go back to 39.6%.”

Joel Wood, senior vice president of the Council of InsuranceAgents and Brokers, says, “The fiscal cliff and the upcoming lameduck session of Congress are going to put President Obama andcongressional leaders to a significant test, especially as only 16days are scheduled for Congress between now and the end of theyear.”

He adds, “With the looming economic deadlines—expiration of theBush-era tax cuts, sequestration, the debt ceiling—there will betremendous pressure for a deal to be reached.

“There are many scenarios here, but I believe the most likely isa one-year deal that includes spending reduction targets and taxreform that will be hashed out in 2013, while extending to someextent the expiring laws, both on marginal rates and the payrolltax reduction,” Wood says.

This article was originally posted at PropertyCasualty360.com,a sister site of Credit Union Times.