Wednesday, January 02, 2013

Fiscal Cliff Deal: Fasten Your Seat Belts It's Going to be a Bumpy Ride

The Wall Street Journal declares,
The Senate-White House compromise grudgingly passed by the House is a Beltway classic: The biggest tax increase in 20 years in return for spending increases, and all spun for political purposes as a "tax cut for the middle class." But taxes on the middle class were only going up on January 1 because the politicians had set it up that way, manufacturing a fake crisis. The politicians now portray themselves as scrambling heroically to save the day by sparing the middle class while raising taxes on small business, investors and the affluent.
So much for change.
Meanwhile, even as Democrats claim these tax rates won't matter to investment, Senators stuffed their bill full of tax subsidies for special business interests. The wind tax credit survived (cost: $12.1 billion), and so did the tax breaks for cellulosic ethanol ($59 million) and the impoverished producers of Hollywood ($248 million).

Mr. Obama said on New Year's Eve that he wants to pursue "tax reform" this year, but the Senate-White House bill is a walking repudiation of the concept.
Apparently the deal offers $1 in spending cuts for every $41 in tax increases:
According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.

When Presidents Ronald Reagan and George H.W. Bush increased taxes in return for spending cuts—cuts that never ultimately came—they did so at ratios of 1:3 and 1:2.
Economist Jim Pethokoukis tweeted,
Does a $600B tax hike on working and investing boost econ growth? Not on this reality 
Here are 6 things you won't believe that are in the fiscal cliff bill that the Senate passed at 2 am while most Americans were drunk. I'm sure there are more than six.

Humorist/blogger David Burge, also known as Iowahawk, tweeted some perspective,
Congress has agreed to cut spending $1.5 B per year. The White House family expenses are $1.4 B per year.
For its part, the Obama administration declared victory and pledged even more tax increases in the future,
And in a section sure to please Democrats but unsettle Republicans, the White House said it planned to continue seeking more tax hikes, tying them to debt reduction.

“As we move forward to address our ongoing fiscal challenges, both spending cuts and continuing to ask the wealthy to do a little more will be part of a balanced approach," the statement says.
And it may be a far-reaching victory.
One interpretation of deal: Obama just got nearly every Republican senator to vote in favor of higher taxes on the rich. That's important.
This was re-tweeted, apparently approvingly, by White House Press Secretary Jay Carney.

But Grover Norquist, President of Americans for Tax Reform, the group responsible for the Taxpayer Protection Pledge disagreed that the deal was a tax increase at all.
The Bush tax cuts lapsed at midnight last night. Every R voting for Senate bill is cutting taxes and keeping his/her pledge.
He added a dig at Democrats who opposed the Bush tax cuts but voted for the deal in another tweet,
Ds voting yes are reversing position of 2001,2003 and every year since.they opposed permanency...could have acted in 2009/10.
Economist Greg Mankiew argued President Obama rejected his own bipartisan commission,
The fiscal deal struck last night makes one thing clear: President Obama must have really hated the recommendations of the bipartisan Bowles-Simpson commission that he appointed. The commission said that we needed to reform entitlement programs to rein in spending and that increased tax revenue should come in the form of base broadening and lower marginal tax rates. The deal appears to offer no entitlement reforms, no tax reform, and higher marginal tax rates. After all the public discussion over the past couple years of what a good fiscal reform would like like, it is hard to imagine a deal that would be less responsive to the ideas of bipartisan policy wonks.
The Weekly Standard's William Kristol called the deal "ridiculous in too many ways to count" and "a sad commentary on our politics today" but urged Republicans to say yes to the mess,
On the other hand, the deal is substantively better than going over the cliff and having all income and investment taxes go up, and having the defense sequester hit right away. And politically, Republicans are escaping with a better outcome than they might have expected, and President Obama has gotten relatively little at his moment of greatest strength. In particular, this should do it for new tax revenues, at a number lower than Speaker Boehner originally offered—and it should be pretty easy to have the next debate focus on spending and entitlements.
John Hinderaker offered an optimistic take on the "cliff" deal, arguing that it will expose the lie of the Obama "mantra"
that we just need to increase taxes on the “wealthy,” restoring them to Clinton-era rates, and then everything will be fine. He has never offered any other plan either to raise revenue, or to control spending. Raising taxes on upper-income taxpayers is the only card in his deck. 
When this inevitably fails to make a dent in the deficit the public will notice.
At some point, perhaps sooner rather than later, interest rates will begin to rise, at which point the debt issue will become a crisis. And Republicans will say: we told you so.

The Democrats will have only three choices: they can try to raise taxes on the “rich” even higher. But raising them to 100% wouldn’t deal with the deficit, even if you assume all those rich people are willing to work for free. The second option is to restrain federal spending. The Democrats would rather die than do that. The third option is to try to raise taxes on all those millions of Americans who aren’t rich. That is what the Democrats will do once the moment arrives when they can no longer ignore the trillions of dollars in debt they are inflicting on our children. That will be, politically, a very bad moment for the Democrats and a very good one for the Republicans, who can offer the alternative of less spending and who will have been proved right with respect to the biggest policy debate of recent years.

All of this is another way of saying that, with the Democrats’ BS about raising taxes on the rich out of the way, we can have a rational debate about the country’s fiscal future.
Or maybe the Democrats and the media will try to blame this on the tax increases only affecting those above $450k per year rather than the $250k per year the President wanted.

As far as Nevada's delegation, both Senators, Republican Dean Heller and Democrat Harry Reid voted for the bill. In the House, Democrat Shelley Berkley voted for it. Both of the state's House Republicans issued press releases explaining their votes.

Joe Heck voted yes.
"At midnight last night taxes increased for every American individual, family, and small business. Tonight, the House has passed legislation to permanently lower rates for 98% of Americans while also providing certainty to family-owned businesses by permanently locking in the rates for the estate tax. The bill also protects capital gains and dividends rates, which will provide seniors on fixed incomes with financial security. Additionally, this legislation included provisions important to Nevada that would help ensure seniors’ access to the physician of their choice, preserve the state and local sales tax deduction, and extend the Mortgage Debt Relief Act of 2007.

"While I would have preferred to see more spending cuts in this final package, I did vote for this compromise because ultimately it was more important to protect Nevada families and businesses from these unprecedented tax increases.
Mark Amodei was the only member of Nevada's Congressional delegation to vote no.
"I respectfully decline to support a measure that raises $41 in revenue for every dollar of spending cuts (Congressional Budget Office). This is not a balanced approach. The status quo on the federal budget deficit and federal debt is not acceptable; especially at a time when Nevadans continue to struggle with the uncertainties of a persistent recession, the implementation of ObamaCare, and the administration's newly expressed desire to increase taxes again this year.

"Adding to the uncertainty misery index for employers and the middle class, is the appearance there is no end in sight to the anti-business regulatory onslaught of health, labor, environmental, and land use regulations pouring out of this administration.
This sets up another battle in a couple of months over the debt ceiling and sequestration, which the fiscal cliff deal merely postponed for 2 months. For those who hoped for more congeniality this session of Congress, or who thought this fight would be the last contentious battle well, too bad. Fasten your seat belts, folks, it's going to be a bumpy ride.

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