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.” U.S. 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
2½ 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 incomes 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 No. 1 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 soon,
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 that
Rand Paul and other House tea partyers 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 U.S. 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.
