The 2001 Bush income tax rate cuts will expire for individuals earning more than $400,000 a year and couples earning more than $450,000 a year; above that amount the top marginal income tax rate will rise from 35% to 39.6%. (Congratulations, Congressional Republicans: You have created another tax bracket.) Capital gains taxes, already set to rise from 15% to 18.8% on individuals making more than $200,000 a year and couples making more than $250,000 a year through the 2010 Affordable Care Act, will rise to 23.8% at a $400,000/$450,000 threshold. The estate tax will rise from 35% to 40% on estates valued at more than $5 million for individuals or $10 million for couples–though the estate tax will also now be indexed to inflation, thus rising to a projected $7.5 million/$15 million valuation threshold by the end of the decade. The Alternative-Minimum Tax, designed as an alternate tax rate to prevent affluent taxpayers from claiming too many deductions and paying too little tax, will now be permanently indexed to inflation, thus sparing millions of middle-class households regularly protected from the tax only by annual adjustments to its income threshold. The Earned Income Tax Credit, the Child Tax Credit, and the college tuition tax credit–all part of President Obama’s 2009 Stimulus–have been extended for the next 5 years. A large, complicated assemblage of business tax deductions set to expire, including 1 for business capital spending also created through the 2009 Stimulus, have been extended for 1 year. The President’s late-2010 payroll tax cut, a temporary stimulus measure which was extended through all of 2012, will be allowed to expire. Additional unemployment insurance for the long-term unemployed will be extended through this year at a cost of $30 billion; this additional safety net spending will not be offset with spending cuts. The “Medicare doc fix,” which spares Medicare service-providers the rate cuts scheduled to take effect through the mandatory spending cuts of the dreaded “sequester,” has been put off for 1 year, hopefully pending some more-extensive deal on deficit-reduction. All other sequester mandatory spending cuts will be put off for 2 months. This 2-part suspension of the sequester is projected to cost about $110 billion. All of that increased spending is to be deficit-neutral, 1/2 through offsetting spending cuts and 1/2 through taxes on new Roth IRAs for Federal employees. The recent farm bill will be extended for 9 months to buy time to pass a replacement, thus preventing an expected doubling of milk prices due to the automatic return of outmoded 1949 price controls. Finally, a recently-instituted pay raise for Federal employees (including Congress) will be frozen as a small (but in Congress’ case, satisfying) cost-saving measure.
The new income tax, capital gains tax, estate tax and Alternative-Minimum Tax rates are all permanent and will not require further statutory maintenance.
Nobody likes this deal intrinsically, which is the hallmark of a legitimate compromise. No one has anything good to say about the institution through which this deal was struck–Congress–which simply reflects a lack of reciprocity and trust all around.
So, who won the fight over the fiscal cliff?
What’s that? You think it’s cynical of me to ask after the political optics of this deal immediately after offering only the general analysis of the plan itself? Why yes, I suppose that is cynical of me. I am in an exceedingly cynical mood. The least-productive, most self-injurious Congress in American history nearly collapse in appalling dysfunction as it adjourned, and the reason for this is clear: The House Republican Conference is not well-adjusted enough play with others.
If you’ll indulge me, I will review a dreary history: In January 2010 Republican Scott Brown had an upset win in the special election to fill Ted Kennedy’s (D-MA) old Senate seat. Since that time, when the Republicans advanced to 41 seats in a 100-member Senate, they proceeded to filibuster any attempts to pass a budget–just the ordinary budget–through their chamber; Congressional Republicans then repeatedly and for years noted, with false indignation, that Senate Democrats had failed to pass a budget through their chamber since 2009! It had become the default strategy of Congressional Republicans to stall Democratic policy initiatives while offering few of their own that had any chance of becoming law, then blame the Democrats for being unproductive.
For the record, there is a difference between being a Conservative and manipulating institutional checks and balances in order to make the country ungovernable in order to undermine the other party for temporary tactical advantage, then refusing to negotiate about anything whatever. I can’t believe this needs to be clarified, but it is a point dozens of House Republicans have consistently failed to grasp.
Consider Congressional Republicans’ highlight moments since gaining that 41st vote in the Senate: In November and December 2010 41 Senate Republicans filibustered President Obama’s New START nuclear arms reduction treaty with Russia, the repeal of “Don’t Ask, Don’t Tell” that would integrate gays into the US Military, new FDA food safety inspection standards, the DREAM Act which would allow immigrants brought into the country illegally as children but who were either studying a 4-year college or serving in the US Military, and most-horrifyingly the James Zadroga 9/11 Health and Compensation Act. They waged this filibuster because President Obama did not intend to extend George W. Bush’s tax cuts for the rich, and for no other reason. At the same time they were railing against the largest Federal budget deficits in decades, and repeatedly insisted that no new sources of Federal revenue would be needed to lessen these deficits. I was and remain an expositor of the tax cut deal that followed, which allowed President Obama to complete most of his 1st term agenda in 2 years as well as institute the payroll tax cut, which served as a valuable form of stimulus in giving an average-income family a $1,000 tax cut; but whereas I hoped this peculiarly Republican form of brigandage could transmute through this deal into the grounds for broader consensus, it turned-out to be what the pessimists thought it was–the honeymoon, done before the 112th Congress even met the following January.
And what a worthless Congress the 112th was! I can still remember February 2011, when Speaker Boehner cordially proposed $38 billion in mostly-nominal spending cuts, which amounted to several hundred million dollars in probable cuts to actual spending outlays. Speaker Boehner found he couldn’t carry the House Republican Conference along for a budget with such modest spending cuts, though he was already pulling against President Obama, who had already proposed new spending to invest in our infrastructure, basic research and education system in his 2011 State of the Union Address. Anyway, several weeks of incoherent and rancorous negotiations and several temporary budget resolutions later, the US House and Senate signed off on…just under $38 billion in mostly-nominal spending cuts, which amounted to about $350 million iI didn’t know it then, because I had wanted to think that the Conservatives of the 112th Congress were simply getting their bearings and learning their limits–but the spring 2011 fight over the Federal Budget was a microcosm for our whole experience of the 112th Congress. It was shrill, it deepened mistrust, the top negotiating parties were ambiguous or kept changing, resolutions were ad-hoc and budgets effectively lasted for several weeks, there were multiple threats of government shutdowns of varying severity, consumer demand nationwide was weakened by what spending cuts the Republicans did get, and the financial markets tumbled several times in reaction to multiple phases of weeks of uncertainty about taxing and spending policies–or even uncertainty about whether the Federal Government would pay Social Security checks and Medicaid services on-time. On more than 1 such occasion the Conservative “Tea Party” Republicans in the House of Representatives ended-up either acceding to or unable to stop last-minute deals that were worse for them than what President Obama had offered them, simply because they have previously refused to compromise on any tax increase. The dramatic failure of Speaker Boehner’s “Plan B” proposal to raise income taxes only on those making over $1 million a year is fresh in most political junkies’ minds…but do you recall that the exact same thing happened in the House in late-July 2011 with the confrontation over raising the Federal debt-limit? There was the prelude of the November-December 2010 tax rates fight, the February-April 2011 Federal Budget fight, the appalling June-July 2011 debt limit fight, about 3 months of fruitless argument over how to reduce Federal deficits in a balanced way that ended with the “sequester” spending cuts activating on Thanksgiving 2011, the FAA shutdown, the near-suspension of Federal highway spending (which could have shut-down highway construction and maintenance projects in progress all over the country) in June of year past, and now the December and November wrangling over the “fiscal cliff,” wherein House Republicans clamored that they would risk letting taxes go up several thousand dollars this April for middle-income families rather than entertain raising tax rates only on millionaires.
This is the bizarre non-record of the 112th Congress, simply-put and in all seriousness the worst Congress in American history. But for all the uncertainties and contingencies in political life, I can tell you exactly the primary source of all the problems: It’s the House Republican Conference, which for 2 years has vainly passed a series of activist bills that had no chance of becoming law. These bills weren’t intended for the real World but for a Tea Party fantasy-land in which Republicans had a supermajority in the Senate, there was a Conservative-Republican President, and the country wasn’t still starving for consumer spending following the worst financial shock in 4 generations. By promising to and then proceeding to fight the President at every turn Congressional Republicans lost the middle American voter, who gave them their best election night in decades in November 2010; by attacking the welfare and regulatory state President Obama sought to modernize and constantly negotiating in bad faith, they transformed their political nemesis from a parliamentary consensus-leader into a fighting executive; by refusing to compromise when the Speaker of the House presented them with favorable compromise antes the Republican right-flank ruled themselves out of any legislative winning coalitions and drove last-minute deals on the budget and taxes to the left.
Having seen the full scope of the 112th Congress and what it was capable of (which is essentially less than its automatic functions), we can safely conclude in its last full day that the 112th Congress was not worth a damn. In aggregate this Congress could not avoid actively harming the nation’s economic recovery; it could only desist doing it when 1 of its parties–always the same one, I have concluded–relented in the face of the realization that it was about to be blamed for causing that harm.
So, since political considerations (as opposed to policy, let-alone public service) are all Congress can concern itself with today, I will move right on to the “vulgar” political question: Who won the fight over the fiscal cliff? Well, I don’t even know know at this point, and if you’ll pardon the cliche, the American people lost on account of all the attention invested in such narrowly-conceived issues, and the (understandable) investor ambivalence which has set our economy back while Congress wrestled with itself to prevent middle-class taxes from rising thousands of dollars in a single year, or a doubling of milk prices. So we lost, that much goes without saying. And it is at this point that I realize the 112th Congress is best understood as the theater of a war started by the Tea Party.
Does that seem a bit extreme? Well, what was this Congress but a steady and intrinsically profitless destruction of 2 parties’ resources in the hope that 1 party would eventually give up and make massive political concessions in the hope of peace? That would be a war. True, there were no literal casualties. That’s because the Federal debt limit was increased in summer 2011.
So who won? Unfortunately, the ugliness truly is in the eye of the beholder this time. I actually have a lot more to say about this, but this is the thought I want to leave you with.