Instead of comprehensively dealing with the problems
in a timely fashion, legislators waited until mere weeks before beginning
serious negotiations to avoid falling off the “fiscal cliff.”
Only Washington politicians would have the hubris to
name the mangled response to a crisis of their own creation the “Job Protection
and Recession Prevention Act of 2012.” In spite of the fact that the measure
permits a net tax increase over 2012 tax policy for all Americans, the measure
passed the Senate 89-8 and the House 257-176. Senator Jeff Sessions and Representative Terri Sewell were the only
members of Alabama’s federal delegation to support the legislation.
November’s election provided Democrats the leverage
they needed to ensure that the 2001 and 2003 tax cuts expired for some portion
of high-income earners. But in order to
secure the tax hikes, most Americans expected the GOP-dominated House to insist
on Democrats agreeing to spending reforms. This anticipated compromise never materialized.
After Speaker John Boehner’s “Plan B” failed, House
Republicans waited to see what the Senate served up. Democrats successfully changed the terms of a
compromise involving spending reforms and tax hikes into a debate over how many
higher-income Americans would see tax increases. With slogans like “living to fight another
day,” Republican Senators led by Mitch McConnell, along with many
historically-principled conservatives, backed the legislation.
The resulting “compromise” supported by a large
majority of Senators has no meaningful spending cuts. In fact, the automatic spending cuts that were
to take place have been delayed for two months, and the act authorizes more
than $300 billion in new spending over the next decade, according to the
Congressional Budget Office.
There are positive aspects of the legislation. First, it permanently extends the so-called
Bush tax cuts for most Americans except those individuals making more than
$400,000 and couples making more than $450,000 per year. People with higher incomes will see higher
marginal tax rates, increased taxes on capital gains and dividends, and
limitations on exemptions and deductions.
Other provisions include a permanent fix for the
alternative minimum tax, a one-year delay to cuts in Medicare payments for
doctors, extended unemployment benefits, and a temporary extension of certain
portions of the 2008 farm bill.
Ironically, after all the rhetoric about protecting
the middle class and creating jobs, the expiration of the payroll tax cut
guarantees every worker in America will see two percent less in their
paychecks. To make matters worse,
Congress is increasing taxes without making any of the structural changes to
ensure that Social Security will actually be around for the next generation.
So what does all of this mean? In short, the New Year begins with tax
increases, no federal spending reforms, and Republicans needing to find new
negotiators… fast.
The “fiscal cliff” showdown is the undercard to the
debt ceiling’s main event. In two months
when the automatic spending cuts are scheduled to take place, Republicans are
banking that Democrats will be forced to concede major spending cuts to
non-defense discretionary spending and entitlement reform as part of another
“grand compromise” that will almost assuredly result in a vote to raise the
debt limit… again.
GOP supporters of the measure boast that supporting
the legislation now without spending reductions gives them a stronger
negotiating position for the debt ceiling fight. Many Republicans seem to believe that the President
and his Democrat colleagues will not be able to turn the discussion into a
class issue because they have already raised tax rates on the wealthy.
Unfortunately, very recent history suggests
otherwise. Democrats successfully
dismantled Romney and held the Senate against formidable odds by couching
Republicans as cold defenders of the wealthy. They did it again during the “fiscal cliff” compromise, and President
Obama has signaled that additional revenues from wealthy Americans will be part
of any future spending reforms during the debt ceiling negotiations.
The dynamics of the next fight are clear.
Republicans are reluctant to support a debt ceiling increase, they want
spending and entitlement reforms, and they are deathly afraid of being blamed
for shutting down government. Democrats
want to increase revenues, largely reject GOP spending reductions, and are far
more willing to expand the debt limit. More importantly, the spending cuts that will automatically take place
without congressional action may be the high water mark for many Democrats when
it comes to spending reductions.
For compromise to be effective, both sides need to
engage in a little give and take. Right
now many Republicans are giving up on their conservative principles and taking
a beating from the political left for a strategy that has yet to succeed. Americans who want limited government, fiscal
responsibility, and conservative leadership need to look for a better
deal.
About the author: Cameron Smith is General Counsel
and Policy Director for the Alabama Policy Institute, a non-partisan,
non-profit research and education organization dedicated to the preservation of
free markets, limited government and strong families, which are indispensable
to a prosperous society.
This article was published by the Alabama Policy
Institute.
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