Most years, we’ve spent New Year’s Eve with a small group of friends playing table games or cards, but this year we had a quiet evening at home flipping channels between football, and the drama that was occurring in our nation’s capital as Congress allowed us to go over the fiscal cliff, briefly.
When we woke up on Jan. 1, tax rates for everybody had reverted to the pre-Bush tax cut levels. But because this was a federal holiday, the effect of the changes wouldn’t be felt until the markets opened on Jan. 2, so Congress stayed in session and tried to resolve their differences, rather than relax and enjoy New Year’s Day festivities.
It was hard to feel sorry for them. It was their own fault. For 17 months the leadership has known this deadline was pending, but they couldn’t find the common ground the nation has been yearning for to remove the uncertainty that has been holding our economy back.
Shortly after 10 p.m. on New Year’s Day, after another day of drama, the House of Representatives voted 257-167 to approve a bill that was identical to one that was brokered in the Senate the night before by Vice President Joe Biden and Sen. Mitch McConnell (R-Kentucky) with a bipartisan majority of 89-8. Sadly, Iowa’s two senators voted no, giving us the unhappy distinction of being the only state with BOTH senators voting no – but for opposite, politically-motivated reasons. Shame on both of you, Tom Harkin (D) and Charles Grassley (R)!
The majority in the Republican-controlled House was achieved with 172 votes from Democrats and just 85 from Republicans. That majority was there from the start, but House Speaker John Boehner was too proud to pass the bill with more votes from Democrats than Republicans – until he HAD TO, for the good of the nation. Then he became a problem solver and not a politician. Thank you, Speaker Boehner, and thank you to Iowa’s Democratic U.S. Reps. Dave Loebsack, Bruce Braley and Leonard Boswell for voting Yes! And brickbats to our Republican U.S. Reps. Tom Latham and Steve King who voted No.
Sadly, the new tax rates which, as predicted, sparked a 308-point surge in the stock market on Jan. 2, were nearly derailed by tea party House Republicans who threatened to amend the bill – which would have delayed action several days and led to chaos in the markets.
Thanks to the actions of our problem-solving elected officials who were willing to compromise – nobody got 100 percent of what they wanted! – your 401Ks and investment funds are growing, not shrinking. I include President Obama among the problem solvers. Even though his approval rating among NSP readers is just 41 percent in our online poll, I hope we could all recognize that his administration worked hard for the compromise and he’s not nearly as liberal as people think.
A liberal socialist (which some people say he is) would never have agreed to keep income taxes at the 2012 levels for individuals making $400,000 or less and couples making $450,000 or less. Those threshholds were raised from $200,000 and $250,000, and also apply to capital gains and dividends, which remain at 15 percent for most of us and jump only to 20 percent above those levels – which my accountant says are indexed for inflation.
Further, the alternate minimum tax that trapped tens of thousands of middle income wage earners, was fixed, and the estate tax exemption was raised to $5 million per spouse ($10 million per couple), and indexed for inflation, with inheritances above those levels taxed at 40 percent instead of 55 percent, thus protecting small businesses and farms from being forced to sell assets to pay the taxes.
On the negative side for us (good for the government solvency), the 2-percent payroll tax holiday ended and wage earners will be paying more into Social Security. And the 3.8-percent healthcare tax on income over $250,000 starts this year.
Those are increases, but all in all, the Obama tax cuts are a good package and they wouldn’t have been possible without compromise – which makes Harkin’s and Grassley’s votes all the more disappointing. There wasn’t a member of Congress who voted yes who wouldn’t have had a reason to vote no. But leave it to our guys to play their partisan hands.
“The deal is grossly unfair,” said Harkin, because it doesn’t tax the rich enough (the highest rate goes from 35 to 39.6 percent, as in the Clinton years), and “leaves the country in a position where we cannot generate the revenue necessary to meet our commitments to job training, to education, and other critical supports for the middle class.”
Grassley voted no for the opposite reason: “It’s a fiscal farce to raise taxes and hurt economic growth only to fuel more government spending with record deficits and debt,” he said. “People at the grass roots want Washington to spend less, not more. Failure to deal with spending lets them down. Spending restraint ought to be more than a wishful New Year’s resolution with no way to be certain it’s kept.”
There is merit to what both senators say. To balance the budget, we need more revenue and less spending, as was recommended by the bipartisan Simpson-Bowles Commission three years ago. Unfortunately, until congressmen learn that they will never get 100 percent of what they want, those recommendations will be sitting on a shelf somewhere collecting dust.
Harkin, Grassley and the 535 members of Congress will have a chance to show their true colors in two months with a key vote on raising the debt ceiling.
On this, the president said he will not negotiate. If expenses have been authorized that are greater than the current debt ceiling, they must be paid. Not to do so is to risk our nation’s credit rating and could lead to a global financial meltdown. It is beyond belief that our leaders would even THINK about that!
The challenge is to cut spending in a way that is not harmful to jobs and economic growth. Surely this is possible. Here is a breakdown of our $3.6-trillion spending:
Defense 19 percent
Social Security 20 percent
Medicare & Medicaid 23 percent
Interest 8 percent
Discretionary 18 percent
Other mandatory 12 percent
Our leaders need to be willing to gradually, over time, raise the age of eligibility for Medicare and Social Security and add a means test for high wage earners to save those programs – and then find smart ways to cut defense spending without hurting national security. After all, HALF of all global military spending is by the U.S.!
Harkin, who was elected in 1984, and Grassley, in 1980, are among the most senior members of the Senate. They will probably be re-elected as long as they run. They can do a lot of good for Iowa and the nation, but on this, we deserved better.