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November 26, 2014

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Why lawmakers’ failure to beat fiscal cliff deadline might benefit them

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ASSOCIATED PRESS

Senate Majority Leader Harry Reid, left, of Nevada, talks with a journalist as the elevator doors close as he departs the Capitol after a vote about the fiscal cliff, on Capitol Hill, Tuesday, Jan. 1, 2013 in Washington.

Fiscal Cliff

House Majority Leader Eric Cantor of Va., right, leaves a Republican caucus meeting on Capitol Hill in Washington, Tuesday, Jan. 1, 2013. Cantor, the No. 2 Republican in the House leadership says he opposes a Senate-passed measure to avert the so-called fiscal cliff. Launch slideshow »

Congress has missed the fiscal cliff deadline, but in doing so, it may have actually made the road to avoiding the cliff’s adverse economic effects much smoother than it would have been otherwise.

By temporarily going over the cliff, Congress undid one of the hardest and fastest sticking points lawmakers had with the idea of striking a deal: The fact that to do so, some people would have had to pay more in taxes.

The fiscal cliff is the combination of tax hikes and across-the-board government spending cuts that were scheduled to take effect at midnight on Jan. 1.

Heading into this New Year’s fight, Democrats had wanted to avoid the economic crunch of across-the-board tax hikes and spending cuts by extending pre-2013 tax rates on incomes up to $250,000, while Republicans had insisted that raising taxes at any income level was anathema.

But what were potential tax hikes in 2012 are, in fact, tax cuts in 2013.

On Jan. 1, according to the deadline Congress imposed on itself through various agreements over the past two years, income taxes at all levels shot up to 1990s levels, and across-the-board “sequestration” cuts went into effect.

The true effect of both of those events won’t actually come to fruition for several weeks, as Congress has already funded the federal government through March and the Internal Revenue Service isn’t requiring payroll offices to implement the increased deductions that may result from new tax rates until mid-February.

But in that window, Congress has wiggle room to bring down tax rates again — avoiding both the economic drag of the full, fiscal cliff and the potential political lead weight of having voluntarily voted to raise taxes at certain higher income levels.

In fact, because the Senate voted in the wee hours of Jan. 1 — and the House of Representatives isn’t scheduled to vote until at least noon — no lawmaker in Congress is going to have to face the political hurdle of defending a vote to raise taxes as part of the fiscal cliff deal during a future campaign reckoning.

Just after 2 a.m. Tuesday, the Senate voted 89-8 to approve a deal, struck between Vice President Joe Biden and Senate Minority Leader Mitch McConnell over Sunday and Monday, to permanently extend pre-Jan. 1 tax rates on income levels up to $400,000 for individual tax filers, and $450,00 for couples.

It also extends unemployment benefits, the sales tax deduction, the mortgage debt relief deduction and energy tax credits through 2013, and pegs the maximum amount of inheritances that can be waived under the estate tax to inflation.

The deal secured the votes of all but three Senate Democrats (and Sen. Frank Lautenberg of New Jersey, who had the flu) and all but five Republicans. Nevada Sens. Harry Reid and Dean Heller both voted for the deal.

That gives the bill good momentum as it heads to the House today, when it will face its most existential threat.

House Republicans have routinely objected to efforts to only partially extend the Bush-era tax cuts, no matter what they are packaged with. Two weeks ago, House Speaker John Boehner rejected an offer from President Barack Obama to balance tax cuts up to $400,000 with an extension of unemployment benefits and authority to raise the debt limit. Barely a week later, House Republicans rejected a proposal brought by Boehner himself to extend tax cuts on incomes up to $1 million, because it too didn’t go far enough.

Not all Republicans are of equal mind in that regard — Nevada Reps. Mark Amodei and Joe Heck, for instance, were prepared to support Boehner in his $1 million venture. But enough conservative Republicans balked that Boehner pulled the bill before Christmas.

In the last minutes of 2012, Boehner left the door open for himself to amend the legislation the Senate would send him, apparently anticipating resistance in the House that could set another round of inter-house congressional ping-pong in motion.

“The House will honor its commitment to consider the Senate agreement if it is passed,” Boehner promised, but then added: “Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation.”

When asked directly about the difference between voting for a tax compromise before vs. after Jan. 1, lawmakers downplayed the significance.

“You’d have to talk to the whip team for that one. That’s not an issue for me,” Heck said Monday.

But Heck and Amodei both downplayed the significance of the fiscal cliff deadline this week, hinting that they — and Republicans — would rather take a vote later than sooner.

“We have (Tuesday). We have the 2nd. The goal is to try to get something done before the markets open again on Wednesday,” Heck said Monday. “Really that’s what we need to look at. So we have all day (Tuesday).”

“No,” Amodei said flatly on Sunday, when asked if Congress ought to vote to avert the fiscal cliff before the Jan. 1 deadline. “This bit where we have to go to the edge of some manufactured drama-crisis … I hope this doesn’t become the new way of doing business.”

Democrats, however, were stressing in the days leading up to the turn of 2013 that it was important to respect the Jan. 1 deadline.

“That’s just semantics,” said Nevada Rep. Shelley Berkley, acknowledging and then quickly dismissing the validity concerns she’d heard about a vote for tax hikes vs. cuts after the change of the year Sunday.

She said House members were being told to prepare to be in session through Jan. 2. “We should be cleaning up our own mess,” Berkley said.

The House ultimately disbanded Monday evening, several hours before the fiscal cliff’s midnight deadline.

In the Senate, it wasn’t concerns about voting for tax increases that held up progress — it was concerns that they weren’t voting to implement enough of them.

Liberal Senate Democrats saw the McConnell-Biden plan and its $400,000 threshold as a sellout, especially after Democrats emerged from the 2012 election believing they had a public mandate to allow tax cuts above the $250,000 income level to expire.

“No deal is better than a bad deal, and this looks like a very bad deal,” Iowa Democratic Sen. Tom Harkin said Monday morning, arguing that the emerging deal would forever, and mistakenly, define the “middle class” as people earning up to $400,000.

Reid never did offer his personal assessment of the legislation, though he did praise lawmakers for banding together to avert the fiscal cliff with a measure that made “real cuts” in the wee hours of Tuesday morning.

The 157-page bill — all drafted Monday — would also increase the deficit by $4 trillion over 10 years. But that number wasn’t publicly circulated until after the vote was called.

A vote in the House is likely to be made easier not only by the now-disappeared specter of raising tax cuts, but also by the fact that many House Democrats are expected to go along with the venture. House Democratic Leader Nancy Pelosi already accepted the compromise deal before the Senate vote, according to reports; meanwhile, lawmakers like Berkley had said all along they would be amenable to voting for a bill that extended tax cuts on incomes up to $500,000.

Should the House balk at passing the now more-philosophically-palatable fiscal cliff deal on Tuesday or Wednesday, however, it would pitch this issue into the new Congress.

Reid promised the Senate that Tuesday morning’s vote would be their last of the year.

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  1. As long as the cuts help to curb our American government's aggressive military stance and "police of the world" ambitions, in the long run the cliff will serve everyone well.

  2. One thing I noticed regarding this whole Tea/Republican Party caused fiscal cliff debacle is the following people all got together to figure out how to resolve it: Obama, Biden, Reid, McConnell, and Pelosi.

    My question is important.

    Who's missing?

    You got it.

    Speaker Boehner.

    This ain't over with yet.

    The Tea/Republican Party majority in the House of Representatives will find some way to muck it up when they vote.

    Because to them, it's far more important to pursue party politics than to do any damn thing for this country.

    They will preserve the infamous distinction of the entire 112th Congress going down in American political history as the absolute worst, inept, incompetent and utterly useless one EVER.

    I say it won't pass by them. Because the Tea/Republican infection (and that includes Heck and Amodei) won't go for it. Their status quo is to....do nothing.

    I say it won't pass the House.

    Back to square one. They'll fling it back at the Senate. And include stupid stuff with it. Raise the bar. Anything. They aren't interested in fixing anything. They just want it messed up beyond repair.

    I hope they prove me wrong, but all indications show, from past political debacles they have caused, this won't be no different.

    They are more concerned doing what is right for only them, not what is right for the entire country.

    Get ready for another four years of imbeciles infested deep into the House of Representatives....all because of the Tea/Republican majority of ineptitude.

  3. Taken from the national debt clock at this writing:

    Annual spending is 3.54 trillion. Annual revenues are 2.45 trillion leaving an annual deficit of 1.09 trillion. Agreed to tax increase = 80 billion annually leaving 1.01 trillion remaining deficit.

    Assuming the national debt clock is accurate to those rounded figures; what has been accomplished? The new additional "taxes on the rich" amount to 7.3% of the annual deficit and don't even register when compared to a still growing total national debt of 58.05 trillion.

    It is clear that the so called taxes on the rich are simply the game that the liars in the Democratic party who support this play to fool the ignorant and foolish. Was jealousy the motive? Was it to get even as many on the left have clamored for? Will the truly rich like Kerry & Pelosi pay a dime more or will their accounting firms and investment advisors easily avoid any penalties by changing investment and accounting strategies? Have we as a nation accomplished anything by this strategy?

    Is it possible that the real tax burden won't fall on the truly rich but on the small businessman who is a sole proprietor/C Corp business and is required by IRS rules to file his business and personal income as one? Is it possible that that small businessman or woman who likely has barely middle class personal income after business expenses and taxes; and cannot afford to hire expensive accounting firms and financial advisors will have less to work with after this? Is it possible that the end result of all this will be fewer employees, fewer raises and less all around for middle income families? Did we just punish our bosses, our employers and will it impact directly on employees rather than the supposed rich?

    I think we are ignorant fools who gave the wrong answer to the wrong question. Our spending next year will be more than this year. The gap between revenues and spending will grow and our national debt will be larger. We will have solved nothing unless real spending cuts, not the phantom phony maneuverings of Geithner, are passed in the future and that is extremely unlikely. Democrats view the Obama administration as their turn to spend and to get even for Bush and the country and future generations come second or third while their agenda comes first. The real crash is still coming and this finagling won't do a thing to stop it. It is only a parlor trick for the selfish and those easily fooled.

  4. Just before the election, on THE VIEW, O. said "Everybody's taxes will go up." That's his plan. Now or later, your taxes are going up to pay for his spending.

  5. @Roslenda...If you are a believer in the balanced budget and 0 debt then we will actually be paying not just for "his" spending, but for all "our" spending since WWII with interest. If you are a believer in managed debt and deficits then you, again, are not paying for "his" spending but rather for earlier spending as your payments go towards the earliest accrued debt/interest. It's a new year, darlin', take off the tinfoil and avail yourself of the NRA mental health centers....you'll feel better.

  6. Wharfrat: No argument that we need to pay for decades of endless spending. Our economy, in staying sour indefinitely, is telling us loudly that we cannot sustain the same rate of deficit spending--let alone merely slowing the rate of increased spending. I'd love to see a balanced budget with payment towards the debt--without messing with market interest rates. But, we don't have a single politician willing to propose and support anything of the kind. So, with my life expectancy of another 30-plus years, I remain annoyed that we get to see our standard of living on a permanent nose dive while we see media sound bites of how they'll "fight" each other for us. Now if you can get my blood pressure up to normal, I remain totally non violent. With the accompanying low cholesterol and pulse...I probably can't get mental health care unless they can find a way to overcharge me. Maybe they'll decriminalize a medication good at keeping me happy. I've heard the current happy pills have terrible side effects so even that is not a happy prospect. Rattie, tinfoil is not my thing--too much glare and sparkle. I'm more sedate--although I can type / vocalize a harangue when inspired. I do restrain myself on this board. I've been told a number of times by various individuals that they never want me mad (annoyed) with them.

  7. Compliments to the Sun editor / photographer that found a pix of Senator Harry actually smiling. Why is that man so happy? Things are going just the way he / they engineered? The House can't accept the incoherent legislation he engineered.

  8. lvng4evr: you don't think all this is manufactured for our "benefit"?