Congress Approves Fiscal Cliff Deal
The House, Senate, and White House reached an agreement regarding the fiscal cliff. While the agreement does extend the Bush tax cuts for all but the wealthiest Americans, all of us will face higher taxes in 2013 than we did in 2012.
Gary Bauer, Contributing Author: As you have probably heard by now, the House of Representatives passed [257 to 167 with 151 Republicans and 16 Democrats voting against the bill] a compromise bill last night to avert the worst effects of the fiscal cliff. [The Senate passed the bill by an overwhelming 89-8 vote]
Suffice it to say that people on the right and the left are unhappy with it. A lot of conservatives are upset because there are tax increases with virtually no spending cuts. Other cuts included in last year's sequester deal were delayed.
A lot of liberals are angry because it extends 98% of the Bush tax cuts, and mitigates onerous estate taxes that were set to take effect. Lefties like Paul Krugman, Howard Dean and Robert Reich are no doubt furious that the Bush tax cuts have been largely preserved.
Here is a quick summary of what is in the deal.
- The top tax rate increases from 35% to 39.6% for individuals making $400,000 and married couples making $450,000.
- Under this compromise, dividend and capital gains tax rates go up to 20% for those at the $400,000/$450,000 income levels.
- In addition to these higher tax rates, personal exemptions will be limited for individuals making $250,000 and for families making $300,000. And the "Pease limitation" on deductions will be reimposed for individuals making $250,000 and families making $300,000.
- The death tax (estate tax) will be 40% for estates valued at $5 million, and will be adjusted for inflation. Without this deal, the death tax would have been 55% on estates valued at $1 million.
- The alternative minimum tax will be permanently adjusted for inflation, so Congress will no longer have to vote on a yearly AMT "patch."
Don't Forget About Obamacare Taxes
While the media are fixated on this compromise bill, they have barely mentioned the trillion-dollar tax hike that is part of Obamacare. These huge tax increases on families and businesses are kicking in right now. Here is a partial list:
- A new tax on medical devices ($20 billion)
- Caps on Flexible Spending Accounts ($13 billion) -- This tax will hit families with children with special needs particularly hard.
- A 3.8% tax on investment income ($113 billion)
- Reduced Medical Itemized Deductions ($15 billion)
- A 31% increase in Medicare Payroll Tax ($87 billion)
Update: 5:30 PM
Higher Taxes; More Debt?
There are conflicting headlines from the fiscal cliff deal that are causing considerable confusion and consternation. Many conservatives are outraged that Senate Republicans approved a plan that raises taxes at all. But it is important to remember that taxes would have gone up automatically across-the-board as of yesterday even without a deal. Other conservatives are seizing on a report from the Congressional Budget Office (CBO) that the deal increases the national debt by nearly $4 trillion over the next 10 years.
That figure is hokum. The Congressional Budget Office report assumed that all of the Bush tax cuts would expire, and that the government would reap a windfall in higher revenues as a result of these massive tax increases. By renewing 98% of the Bush tax cuts, the deal denied the government trillions of additional revenue. That is how the numbers crunchers come up with the $4 trillion increase in the debt.
Keep in mind that this is the same outfit that just six weeks ago predicted another recession and skyrocketing unemployment if Congress did nothing and allowed the Bush tax cuts to expire.
That's because higher taxes hurt economic growth, and that's why conservatives generally oppose tax increases. Taking money out of the pockets of small business owners and American families and sending it to Washington bureaucrats does nothing for the economy.
There are all kinds of reasons to oppose this compromise. But do not fall for the left-wing logic that considers tax cuts a form of government spending. That assumption begins with the belief that all money belongs to the government. The history of pro-growth tax reform measures is clear: Lower tax rates result in more economic growth, which in turn produces more revenue.
The stock market celebrated the news of a fiscal cliff deal that preserved the overwhelming majority of the Bush tax cuts. The Dow has been up more than 200 points for most of the day. But the fiscal cliff fight is far from over.
It is worth pointing out that this deal raises only about $60 billion a year in additional revenue. That's less than half of what Obama originally demanded. Not surprisingly, he's demanding even more of your hard-earned money.
Congressional Republicans don't want the Pentagon to get hit by another wave of cuts from the sequestration deal. But according to a Los Angeles Times report, "As the price for lifting those defense cuts, White House officials have said, the president will demand another round of revenue (tax) increases."
So after holding the economy hostage to his demand for higher taxes, Obama is now going hold our national security hostage too.
Having conceded to higher taxes on the successful, most Republicans are saying "No more." Senator Pat Toomey (R-PA) is one of the strongest fiscal conservatives in Congress. He grudgingly supported the compromise deal, as did other conservatives like Senators Tom Coburn (R-OK), Jeff Sessions (R-AL) and Ron Johnson (R-WI).
Senators Marco Rubio (R-FL), Rand Paul (R-KY), Charles Grassley (R-IA), Richard Shelby (R-AL) and Mike Lee (R-UT) voted against the deal, along with three Senate liberals. In the House, nearly two-thirds of Republicans opposed the deal, while 90% of Democrats supported it.
Explaining his vote this morning, Senator Toomey said, "We spared as many Americans as we possibly could from a tax increase." But he also said this:
But Obama has no solution beyond raising taxes again and again and again. Even as he celebrated this compromise deal and higher taxes on the "rich," he warned members of Congress that he would not negotiate on the debt ceiling, saying, "[W]hile I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed."
That's an odd statement to make when it seems obvious he's going to have to negotiate with Congress over the obvious problem -- debt and spending. Unless he's prepared to issue an executive order unilaterally raising the debt limit and creating a constitutional crisis in the process. It's also very hypocritical coming from a man who voted against raising the debt limit in 2006.
Back then Obama said, "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. …America has a debt problem and a failure of leadership. Americans deserve better." When Obama made that statement, Congress was debating raising the debt limit to $9 trillion. It is above $16 trillion today, and he is demanding more.
Gary Bauer is is a conservative family values advocate and serves as president of American Values and chairman of the Campaign for Working Families where his articles are also shared.
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