Fiscal Cliff Negotiations: Could Economy Slip Back into Recession?

Jon Karl highlights the latest news in the budget battle in Washington.
3:18 | 12/30/12

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Transcript for Fiscal Cliff Negotiations: Could Economy Slip Back into Recession?
Now to the epic dysfunction playing out in washington. A sort of theater of the absurd that might actually be amusing if the stakes weren't so high for the rest of us. Two days left until we all go over the fiscal cliff which would mean everyone's taxes will go up and sharp spending cuts will go effect that could drive our economy back into recession. To abc news white house correspondent jonathan karl filling in today for george stephanopoulos as host of abc's "this week." Hey, jon, good morning. I know today and tomorrow obviously hugely important. Can you sort of walk us through the potential order of operations? What could we see play out today and tomorrow? Well, it is right down to the wire, dan. What's happening right now is HARRY REID AND mitch McConnell, the top democrat and republican in the senate are still negotiating their staffs at this hour. They are supposed to be working until about 3:00 this afternoon when the plan would be presented to both caucuses. As we understand what they are talking about is the bare minimum. Basically the senate negotiating to extend those tax cuts for everybody making under $250,000 a year and do extend unemployment benefits also they're talking about trying to do something to stop the automatic spending cuts that go into effect but don't expect a deal on that. Now, dan, if a deal can be reached today, the senate would begin looking at it, begin debating it and then you would see vote tomorrow in the senate and possibly a vote tomorrow in the house because as you know, if we get to tuesday without any of this happening, off the cliff. And, jon, you say off the cliff by tuesday, just two days left, how damaging would it be if we do indeed go off the cliff even if we bungee up a few days or weeks after. The impact on everybody's taxes could be limitedf they come back in the next week or so and make it retroactive. You could have a situation where people's paychecks aren't immediately affected. But, look, the effect on the economy here, bianna, as you know full well is the uncertainty. Even if they get a deal, one of these mini deals we're still going to have an epic battle coming up early into the new year over raising the debt ceiling because the federal government is once again reng the limit of how much money can be borrowed. Once again facing the possibility of the united states defaulting on its debts and, you know, last time that led to a downgrade, credit downgrade. Certainly not good news for the economy. We lurch from one crisis to the next. There's also talk about a dairy cliff involving our milk prices going up. Is this real? Is this likely to happen? Isn't this great? Dan, if congress does not act by tomorrow, your milk prices could in fact double by the way, cheese prices, as well. But once again, we believe that the congress will come up with some kind of a solution on this at least a temporary one, but, again, down to the wire they need to pass a farm bill or at least a temporary farm bill to prevent those milk prices from going up. D.C. Forcing tax increases and lactose intolerance on america this morning. Jon by the way has a big show. Senators chuck schumer and jon kyl on "this week."

This transcript has been automatically generated and may not be 100% accurate.

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