From one fiscal cliff to another
The U.S. House passed a last-ditch Senate compromise Tuesday night to save America from falling off the “fiscal cliff.”
But this latest exercise in kicking the can down the budgetary road hasn’t really slowed Washington’s stumble down the path toward bottom-line oblivion.
Yes, relieved investors indulged in a short-term celebration Tuesday as the stock market rose sharply in the wake of the accord. However, while the middle-class has been spared for a year the automatic tax hikes that would have come from a fiscal cliff dive, the dreaded across-the-board spending cuts have been delayed for only 60 days.
In other words, another fiscal cliff looms in March.
So does another round of political brinkmanship leading to yet more postponement of difficult decisions by federal lawmakers — and President Barack Obama.
Those elected officials took 17 months to reach their last-day, responsibility-dodging agreement. Why should Americans have any confidence that another two months will produce a more responsible outcome?
And when, if ever, will the president and Democratic congressional leaders admit that a comprehensive overhaul of federal entitlement programs is not an option but a necessity?
President Obama and Senate Majority Leader Harry Reid successfully resisted Republican efforts to include entitlement reform in the fiscal-cliff deal.
As Washington Post financial columnist Robert Samuelson aptly put it Tuesday: “The crux of our problem — the problem being the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes — arises from an aging population and high health costs, which cause rapid increases in spending on Social Security, Medicare and Medicaid.”
Erskine Bowles and Alan Simpson, co-chairs of President Obama’s bipartisan debt commission, also expressed justified disappointment in the compromise. From a statement they released Wednesday:
“We have all known for over a year that this fiscal cliff was coming. In fact Washington politicians set it up to force themselves to seriously deal with our nation’s long-term fiscal problems. Yet even after taking the country to the brink of economic disaster, Washington still could not forge a common-sense bipartisan consensus on a plan that stabilizes the debt.”
Many GOP House members echoed that criticism of the bill the Senate passed by an 89-8 margin in the wee hours of Tuesday morning. South Carolina Sen. Lindsey Graham, who has repeatedly warned of the dire consequences if across-the-board defense cuts were inflicted, voted for the bill. Outgoing Sen. Jim DeMint did not vote.
Though GOP House leaders were divided on the legislation, enough reluctant Republicans realized that with the new Congress being sworn in this week, they faced a take-it-or-leave-it proposition. And leaving it would have raised taxes on all Americans — and imposed those severe spending cuts.
So 85 Republicans — but none of the five GOP House members from our state — joined 172 Democrats in passing the Senate bill by a 257-167 margin.
Some Democrats were disappointed that the agreement raised taxes from 35 to 39.6 percent only on Americans with incomes of more than $400,000 (for those filing as individuals) or $450,000 (for married couples filing jointly). The president had proposed setting those bars at $200,000 and $250,000, respectively.
Still, the Democrats were able to hike not just the income tax but the capital-gains tax (from 15 to 20 percent) on those above the $400,000/$450,000 levels.
Despite projections, it’s not clear how much additional revenue this bill will generate. Nor is it known how much investment the higher capital-gains rates will deter.
What is obvious, though, is that long-overdue hard calls required to slow the flood of federal red ink have again been dodged.
As for the president’s far-fetched claims that the bill contains meaningful spending reductions, consider by contrast the estimates of the non-partisan Congressional Budget Office. The CBO cites only $15 billion in such cuts — and $620 billion in tax hikes.
That 41-to-1 ratio dwarfs past compromises in which Republicans agreed to tax hikes in exchange for Democratic concessions on spending cuts.
And history teaches that while those tax hikes generally take effect immediately (as they do now), the spending cuts are promised for much later — and routinely are averted by subsequent legislation.
Otherwise, our national debt wouldn’t be a record $16 trillion and rising.
Meanwhile, even if you’re not making $400,000 or more a year, you’ll see a significant tax hike in your next paycheck: Your Social Security “contribution” will revert to 6.2 percent. It was lowered to 4.2 percent two years ago in an effort to help stimulate the economy.
There will also be new taxes and “fees” imposed in the coming year as more of the misnamed Patient Protection and Affordable Care Act’s provisions take effect.
So, yes, there is some measure of relief that we haven’t fallen off the fiscal cliff.
But thanks to this latest deflection of fiscal responsibility, more perilous cliffs lie ahead.