The use of the term “fiscal cliff” to describe automatic tax increases and spending cuts under a 2011 stopgap budget deal was ridiculously melodramatic. While implementing this asinine deal was likely to damage the economy, it would have been more of a slope than a cliff. And when the deadline hit for avoiding the slope came, it proved to be a bluff after all.
On the one hand, we have the Democrats, who are pragmatic in looking out for the public interest, but too often not tough enough when it comes to negotiating. On the other hand, there are the Republicans, who are unrelenting in waging class warfare on behalf of a selfish corporate elite, refusing to raise taxes on the rich while seeking to cut government benefit programs, which they call “entitlements.” To avoid the idiocy of the fiscal slope, a compromise had to be reached. Brokered by Vice-President Joe Biden and Senate Minority Leader Mitch McConnell (R-KY), it addressed some issues while kicking the can down the road for two months on others with new arbitrary deadlines.
And such a deal it was. Income taxes are going up for the richest 0.6 percent, with the tax rate for couples making $450,000 or more and individuals making at least $400,000 a year increased from 35 to 39.6 percent. President Barack Obama had sought a tax rate increase for the richest 2 percent, couples making at least $250,000 and individuals making $200,000 a year or more. But the Bush era tax cuts for the remaining 99.4 percent of Americans, set to expire when 2013 began, were made permanent, which delighted Grover Norquist, president of Americans for Tax Reform, to whom nearly all congressional Republicans had pledged not to raise taxes.
There are some other little ways in which the rich will pay more. The capital gains tax rate for the richest 0.6 percent increases from 15 to 20 percent. Itemized deductions are capped for individuals making $250,000 or more and for couples making at least $300,000 a year. The estate tax increases from 35 to 40 percent on estates of $5 million or more. All told, these tax hikes will increase revenue by $620 billion, less than half the $1.6 trillion raise in revenue sought by Obama.
Unemployment insurance will be extended, along with tax credits for child care, earned income, college tuition, research and development, and wind power production. The alternative minimum tax was adjusted for inflation. The Medicare physician reimbursement will continue, but won’t be paid out of the Affordable Care Act. To shore up Social Security, which remains solvent for the next 20 years, the payroll tax rate cut from 6.2 to 4.2 percent was rescinded, and the maximum annual income subject to the payroll tax was increased from $110,100 to $113,700.
In the last act of the 112th Congress, the deal was approved by the Senate by an 89-8 vote and by the House on a vote of 257-167. There was strong bipartisan support in the Senate, with Democrats in favor by 49-3 and Republicans by 40-5. Michigan Democratic Sens. Carl Levin and Debbie Stabenow both voted yes. The House was another matter, with Democrats favoring the deal by 172-16 and Republicans opposed by 151-85. In the Michigan delegation, all seven Democrats voted yes, while the Republicans split 5-3 in favor. Voting yes were Dan Benishek, Dave Camp, Candice Miller, Mike Rogers and Fred Upton. Opposed were Justin Amash, Bill Huizenga and Tim Walberg. Also opposed were Sen. Tom Harkin (D-IA) and eight progressive House Democrats who objected to making the Bush tax cuts permanent for most Americans.
Left unresolved were the matters of sequestration, under which $110 billion is to be cut from the federal budget, half from the military and half from other programs, and raising the debt ceiling from the current $16.4 trillion. Both are to be dealt with by the new 113th Congress over the next two months. There is also a continuing resolution funding federal government programs that expires March 27. If it isn’t resolved, a shutdown could result.
In negotiations over sequestration and the debt ceiling, Republicans are expected to continue to act like hostage-taking terrorists, demanding cuts to such programs as Social Security, which has nothing to do with the deficit, Medicare, Medicaid and veterans benefits as part of a deal and threatening to go over the fiscal slope if their demands aren’t met. But the Democrats are now in a stronger bargaining position, with Obama re-elected by a solid margin, a two-seat gain in the Senate and an eight-seat gain in the House. If the Republicans refuse to act like adults, Obama has indicated that he is willing to call their bluff. Given the results of previous brinksmanship, he would be well-advised to do so.