House Could Still Oppose Deal
After months of intense negotiations between senior members of both political parties, America toppled over the "fiscal cliff" at midnight Monday.
Vice President Joe Biden and Senate Majority Leader Mitch McConnell (R-Ky.) were able to broker a last-minute deal. However, House members are yet to vote on the deal. They were scheduled to do that on New Year's Day. The House is still the wild-card in this scenario because of disaffected Democrats, conservatives and Tea Party members who are vehemently opposed to any tax increases and could still scuttle the deal.
They will have to decide if they are willing to put their support behind a deal that increases taxes significantly for the first time in 20 years.
With a deal in place, the effects of the cliff will be minimal because Congress will likely retroactively implement provisions of the deal if the House agrees to it.
The deal passed in the Senate by an 89-8 margin. The House was expected to consider the measure Tuesday afternoon.
On New Year's Eve, President Barack Obama appeared at a White House event where he told an audience of middle-class Americans that a deal was "within sight."
"...I realize that the last thing you want to hear on New Year's Eve is another speech from me, but I do need to talk about the progress that's being made in Congress today," Obama said. "For the last few days, leaders in both parties have been working toward an agreement that will prevent a middle-class tax hike from hitting 98 percent of all Americans starting tomorrow. Preventing that tax hike has been my top priority, because the last thing folks ... [like the ones] on this stage can afford right now is to pay an extra $2,000 in taxes next year. Middle-class families can't afford it. Businesses can't afford it. Our economy can't afford it."
Obama said there were still differences to be ironed out but he hoped Congress would get it done.
Among the provisions of the Biden-McConnell deal are no tax hikes for middle-class families; extension of tax credits for families with children; the availability of tuition tax credits; tax credits for clean energy companies creating jobs and reducing America's dependence on foreign oil; and a continuation of unemployment insurance for the two million Americans still actively looking for work.
The deal appears to have averted a series of automatic spending cuts and tax increases scheduled to go into effect on Jan. 1. There are more than $100 billion in automatic cuts to defense and domestic government spending now, and as well as $400 billion in tax hikes precipitated by the expiration of income tax breaks, such as the alternative minimum tax, the temporary payroll tax cut and others adopted during the Bush administration.
The average household would have seen an estimated annual increase in taxes of $3,500.
Late Monday afternoon, what was described as "fast-moving" negotiations between Biden and McConnell led to an agreement to raise estate taxes from 35 to 40 percent with a $5 million threshold, and increase taxes for individuals making more than $400,000 a year, and couples making more than $450,000 annually. In addition, families making $300,000 a year and individuals earning more than $250,000 will no longer be able to claim past exemptions and itemized deductions.
Businesses meanwhile, would benefit from a range of extended tax breaks and millions of families will not have to pay the alternative minimum tax going forward.
A crucial sticking point was how best to handle the sequester or automatic spending cuts. Democrats ceded ground to the Republicans by agreeing to tackle the issue in two months. Democrats had wanted to "kick the can down the road" until 2015.
But even as the prospects of a deal hung in the air, neither side could resist falling back on the partisanship, bickering and brinksmanship that have characterized the negotiations.
Obama took some jabs at Congress that didn't go over well.
"My preference would have been to solve all these problems in the context of a larger agreement, a bigger deal, a grand bargain, whatever you want to call it," he said. "[One] that solves our deficit problems in a balanced and responsible way, that doesn't just deal with the taxes, but deals with the spending in a balanced way so that we can put all this behind us and just focus on growing our economy. But with this Congress, that was obviously a little too much to hope for at this time."
That led to criticism from Republican lawmakers, who themselves were being savaged by the public for waiting until the 11th hour to resolve an issue they had more than a year to deal with.
By dodging the bullet, the country avoided a jump in unemployment of more than nine percent; the economy will likely not grind to a halt; the stock market will settle down; and America's credit rating, status abroad and global confidence will remain unaffected.
Last year, the president and Republicans agreed to $1 trillion in deficit reduction. In addition, the GOP wants another $1.4 trillion in cuts. Recently, Obama agreed in principle to implement $400 billion in cuts to Medicare this year. His left-wing and progressive supporters have made it clear, though, that they don't support any cuts to "entitlement" programs.
Alton Drew, an Atlanta-based legal and policy analyst, said he was surprised that a deal was consummated because he'd deduced from comments made by Obama last Friday evening that both sides would not be able to forge a deal. He, like a number of Americans, is disgusted with the raw partisan nature of politics in the nation's capital.
Drew, a Libertarian, said both parties appear to still be contesting the general elections.
"[That's] a waste of time," he said. "I don't know which constituency they're trying to satisfy. The American people want a deal."
"[And] I don't know why [Republicans] are so intent on protecting the rich. Unless you're running for Congress in 2014, you can do what you want."
Republican commentator Crystal Wright says that the real issue politicians are grappling with is spending not taxation.
"We have a spending problem. We're going to fall off the cliff because the president is not serious about spending," Wright said. "We will arrive at a deal in the new year. Sadly, they are leaning toward a deal on taxing higher earners. The president is never satisfied. He won't be satisfied until top earners end up paying more."
Wright questions Obama's insistence on taxing the wealthiest Americans.
"Two percent of Americans pay almost 50 percent of all taxes," she said. "What I want to ask Democrats and the president is what is ever going to be enough for them? Tax revenue covers about two-thirds of spending and we've had a trillion dollars in deficits each year since Obama took office."
Even if Congress and the president agree to raise the tax rate to between 33 and 36 percent, that would only raise about $80 billion a year, Wright argues, which represents a mere seven percent of the trillion dollar deficit. And closing loopholes, as suggested by a number of Republicans, still would not produce enough money to offset much of the deficit.
Wright believes everything should be "on the table." She supports cutting government spending across the board; comprehensive tax reform and lowering tax rates; seeks fundamental reform of "entitlement" programs and giving states block grants to finance them; and closing significant loopholes, such as getting rid of tax shelters for companies that ship jobs overseas.
She wants "every dime" spent on programs such as food stamps and Medicaid to be closely examined; is critical of the pension and health care perks members of Congress enjoy; and wants corporations like General Electric to pay more in federal and other taxes.
Wright laments America's decline, saying it is on the road to ruin.
"Everything they're doing now is temporary fixes. Somebody's gotta pay for it down the road. If we continue down this path, Americans will be giving up their passports. Money's running out. We're tapped out. I'm not an economist but we raise the debt ceiling so that China owns more of us. Why would we want to sell America's future away?" she asked.