Friday, Nov. 30, 2012 | 2 a.m.
As Republicans and Democrats face off in a final round of fiscal cliff negotiations, their debate has boiled down to a familiar dispute about tax rates, and whether Congress will allow them to rise on the rich in order to extend an across-the-board rate cut for the middle class.
Predictions of economic doom and gloom if the parties can’t come to some agreement are rampant. The White House even started a campaign to drive home the point that the stakes were at least $2,000 for every household.
But in Nevada, there’s a lot more than just basic tax rates on the line.
Waiting in the wings of the tax rate debate are a bevy of other tax deductions that, if they aren’t passed, will result in an even heavier economic blow to Nevada families than the threatened fiscal cliff tax hikes.
Nevadans are waiting on an extension of the sales tax deduction, which alone is worth about $1,500 per household; the alternative minimum tax, which is worth tens of thousands to several upper-middle class filers; and mortgage forgiveness debt relief, which is worth several tens of thousands of dollars to any homeowners who have had their mortgages modified in the past year.
These deductions — some of which have already expired and would need to be extended to apply to this tax year — were lumped together with several other tax provisions in a bill known as the tax extenders package this past August.
The package, worth $205 billion, wasn’t particularly controversial: The product of the Senate Finance committee was fashioned by a bipartisan team of lawmakers, who hoped that passing it before the election would put the Senate on more solid footing to reach a compromise on the main fiscal cliff tax rate question in the lame duck session.
But a faction of Republicans concerned with the bill’s cost — and the fact that it preserves some write-offs with roots in the 2009 stimulus — prevented that vote from happening.
Now the tax extenders bill, and its Nevada-friendly components, are effectively hostage to the rest of the fiscal cliff process.
“We’ve been saying they had the opportunity to pass this, and not make it part of the fiscal cliff,” said Kristen Orthman, Sen. Harry Reid’s spokeswoman. “But because it didn’t pass, it is.”
That puts Nevada’s delegation in a bit of an uncertain spot. Both Republicans and Democrats have expressed their support for the extenders that appear in the Senate Finance bill — in fact, many have been calling for the extensions since long before the Senate committee concluded its process.
Outgoing Democratic Rep. Shelley Berkley had introduced bills this year to extend sales tax credits and investment tax credits for renewable energy. The sales tax credit puts Nevada on even footing with states that have an income tax that can be deducted from their federal returns. Nevada is one of seven states that does not impose an income tax.
Sen. Dean Heller, meanwhile, had filed legislation seeking an extension of mortgage debt relief.
That measure would ensure that any mortgage balance forgiven in a refinancing deal would not be taxed as regular income. The mortgage debt relief issue is particularly acute in Nevada, which often leads the nation in foreclosures.
In the past year, more underwater homeowners were able to access modifications that included mortgage forgiveness, thanks to a court settlement with Bank of America that directed billions toward the alleviation of such debt. Without an extension of the mortgage debt forgiveness, that debt reduction could be taxed.
But inter-party agreement among the Nevada delegation on these issues important to the home base will, for now, have to take a backseat to the greater partisan bickering on the fiscal cliff.
This month, Finance committee Republican Sen. Chuck Grassley of Iowa told reporters that discussions about the tax extender package would be on hold until congressional leaders could strike a deal on circumventing the fiscal cliff.
Congressional leaders have already met twice with President Barack Obama to hash out their now-familiar proposals: Democrats want to see current tax rates extended for income levels up to $250,000, while allowing them to increase on higher incomes; Republicans say they are open to raising revenues, but not increasing taxes, and would rather Congress make cuts to the budget than raise tax rates on wealthier wage earners.
Officially, Congress has until the end of the calendar year to come up with a compromise that will avoid a tax rate hike at all income levels and a simultaneous across-the-board cut to federal spending. Together, economists estimate, those changes will cause the national economy to constrict, perhaps by as much as 4 percent.
Lawmakers on both sides of the aisle have expressed the hope that they will come up with some mutually agreeable deal before Christmas. But as of today, the compromise process doesn’t seem to be advancing too swiftly.
House Speaker John Boehner criticized Democrats Wednesday morning, saying he was “disappointed” no “substantive progress” had been made in discussions to avoid fiscal calamity, and asserting Democrats had not made an offer he could take seriously.
“I continue to believe that any increase in the debt limit has to be accompanied by spending reductions that meet or exceed it,” he said.
Democrats were similarly resolute at midday, saying they had stepped up to the table where Boehner and Republicans had not.
“I don't understand his brain,” Reid said of Boehner. “The president’s made the offer.”
That offer is a bill passed by the Senate prior to the election that extends current tax rates for incomes below $250,000.
But determined as Democrats sounded Wednesday to stick to that offer, the fiscal cliff debate cannot end there.
For instance, the bill has no reference to any of the sequestration cuts.
“Really, the bigger impact from the current fiscal cliff, so to speak, is the sequestration cuts. And nobody’s talking about that,” said UNR economist Elliot Parker. “About 40 percent of the discretionary spending that the federal government would be cutting is money that goes to the states to cover existing programs. If that goes, it either means the state of Nevada will have to increase taxes or implement further cuts.”
And the Democrats’ bill doesn’t include any of the tax extenders package.
Reid’s office indicated Wednesday that should lawmakers strike a compromise on the fiscal cliff, the tax extenders package may be folded into the deal, and passed en masse before year’s end.
But the nagging possibility that Congress might fail to strike a compromise isn’t necessarily a death knell for the other expiring tax provisions. While the tax extenders package has been put off until after lawmakers address the fiscal cliff, it has enough bipartisan support to overcome a filibuster.