As one congressman said at some point on New Year’s Day, about the “fiscal cliff” legislation: “What the heck just happened?”
I don’t remember who it was, could have been a legislator from either party — lots of other Americans were asking the same question. Unfortunately some people rushed to attack various players before being able to answer it. House Republican leaders were accused of “selling out”; Sen. Scott Brown was accused of voting to raise taxes as his last act in office.
I was watching much of the television coverage after following the debate in newspapers over the holidays, and can understand the confusion. My Proposition 2 ½ mentor, Marblehead journalist Warren Brookes, always told me to KISS: “keep it simple, sweetheart”, so here goes.
The “Bush tax cuts”, passed as temporary in 2006 and renewed for one year at the end of 2011, and the also temporary Social Security payroll tax cut of 2010, were due to expire at midnight on New Year’s Eve, 2012. President Obama ran on higher taxes on “the rich”; in return for renewing the 2012 tax rates for most people, he insisted they remain high for income over $250,000. He and Democratic leaders also argued for a “balanced approach” — tax increases on “the rich” and spending cuts.
The president and legislative leaders met in private through the holidays to work out a “balanced” deal, but on Dec. 31 the clock struck midnight and all the tax cuts turned into pumpkins; rates and payroll taxes automatically increased on all taxpayers without any politician voting at all. There were no spending cuts.
The Wall Street Journal’s Stephen Moore writes that House Speaker John Boehner was stunned during his negotiations with Barack Obama when the president told him “We don’t have a spending problem.” At one point in the negotiations, Boehner agreed to $800 billion in new taxes, then asked “what am I getting”? Obama replied: “You don’t get anything for it. I’m taking that anyway.”
It might be hard to believe that level of arrogance if we hadn’t seen our president at his New Year’s Eve press conference, putting the bully in bully pulpit by attacking the Republicans with whom he was supposed to be negotiating. Clearly, if Republicans insisted on spending cuts, Obama would just let all our taxes go up and blame them. Vice President Joe Biden had to step in to negotiate some good things for taxpayers in return for Republican support for the New Year’s Day package.
My number one federal tax concern has been the Alternative Minimum Tax, which was originally created to tax the rich but had, with inflation, begun to capture middle-income taxpayers and small businesses. The package indexed the AMT to inflation, preventing millions from getting hit for the first time. Doctors weren’t given a 27-percent reduction in Medicare payments that would make them less likely to accept Medicare patients.
The lower rate cuts for middle-income taxpayers were restored. However, the payroll tax kept its scheduled increase. I wouldn’t mind if it actually went into a lockbox for Social Security, as it should. At least it’s satisfying that those Obama voters who thought he was going to raise taxes only on “the rich”, not on them, will be getting smaller paychecks, too.
Meanwhile, back at the national debt. U.S. News and World editor-in-chief Mort Zuckerman, who also once voted for Obama but quickly regretted it, noted last Friday on the McLaughlin Report that we need spending cuts to begin to address not only the national debt of $16.3 trillion, but all the unfunded liabilities, the total being $87 trillion.
Obama now says that he is willing to discuss spending cuts if the Republicans will give him higher taxes on “the rich.” What is this movie, “Groundhog Day”? The Republicans, to get the rate cuts on the middle class, had to accept rate hikes on incomes over $400,000-450,000 and a capital gains rate increase. Now Obama wants more.
The main reason Rand Paul and other House tea partiers rejected the New Year’s Day package was that it did not include spending cuts. I understand their dismay but at that point spending cuts weren’t on the table and there was no way to put them there. Better to take the deficit-reduction stand on the next fiscal battlefield: refuse to raise the debt ceiling until there’s some attempt to balance the budget instead of increasing the national debt another $4 trillion during the remaining years of Obama’s presidency.
Those Republicans who voted for the New Year’s Day package voted to “permanently” cut tax rates and the AMT for the middle-class, and to put off the debate on spending cuts. The “sequester” cuts that had also been scheduled for that midnight hour have been delayed with the hope that the new Congress will carefully set priorities for reform and reduction. Don’t hold your breath.
Last weekend I heard former Sen. Alan Simpson complaining that back in his day, Republicans and Democrats worked together on compromises. Yes, Senator, that’s how we got here, deficit hawks compromising with big spenders/borrowers. If I were in Congress, the New Year’s Day compromise would be my last.
Barbara Anderson is executive director of Citizens for Limited Taxation and a regular contributor to the opinion pages.