The nation went off the fiscal cliff like Thelma and Louise’s car as 2013 began, but it turns out Vice President Biden and Senator Mitch McConnell (R-KY) had attached a chain to the rear bumper. Congress passed and sent to the President late on January 1st legislation to re-instate the Bush Era tax cuts for 99% of taxpayers (families earning up to $450,000 per year), postpone sequestration for two months, extend unemployment benefits and permanently prevent the Alternative Minimum Tax from creeping into a larger percentage of tax returns. The bill also includes a Medicare “Doc fix, “ extension of a number of briefly expired tax breaks, a permanent estate tax provision which exempts estates below $10 million from taxation, and favorable taxation of dividends and capital gains. Among the tax breaks extended are the public transit commutation benefit and several provisions relating to alternative fuels of interest for numerous public transportation agencies.
According to the Congressional Budget Office, the official arbiter for Congress of the budgetary impact of legislation, the package INCREASES the deficit by $4 trillion over 10 years compared to the tax and spending policies in place as of midnight on January 1. When compared to the tax and spending policies in place BEFORE the country went over the cliff, the bill reduces the deficit by $ 650 billion and includes $ 620 Billion in new revenue over 10 years.
The bill passed the Senate on a vote of 89-8, with three Senators not voting. Forty of the Senate’s 47 GOP members voted for it. On the House side, the bill passed 257-167, with 85 GOP members voting in favor. Only 16 Democrats, virtually all of them from the more liberal wing of the party, voted no.
Several observers have pointed out that if this package had been put before Congress by former President George W. Bush before he left office it would have received very strong support from GOP members and would have been vilified by Democratic legislators. After all, it makes permanent the Bush income tax cuts on 99% of taxpayers, protects all but the very largest estates from taxation, maintains low taxes on “unearned” dividend and capital gains income and continues to squeeze the Medicare program through reduced reimbursement to hospitals – with a particular focus on cutting expenditures to major urban hospitals with large proportions of uninsured patients. Some Democrats have pointed to the fact that the package received “yes” votes from 40 of the 47 GOP Senators as evidence that the President gave away too much in the negotiations with Capitol Hill.
In fact, a strong case can be made that the President squandered his moment of greatest leverage and backed-down from a negotiating position that appeared strong just a few weeks ago. In the immediate post-election period, President Obama was pushing for $1.6 trillion in new revenues, elimination of sequestration then scheduled for January 3 ,a streamlined process for debt limit increases and investment in infrastructure. Speaker Boehner at one point was offering $1 trillion in new revenue an end to sequestration and a one-year extension of the debt ceiling. He also wanted a specified amount of entitlement spending cuts guaranteed in the deal.
The final package increases taxes by less than half of what the President wanted. It takes no action on the debt ceiling. It forestalls sequestration for only two months. It includes nothing for infrastructure. It also does nothing on entitlements besides the reimbursement “fixes” in Medicare. It DOES include an extension of the farm bill for one year (saving the GOP from the embarrassment of not having held a vote in the House on its own farm bill) and the extension of a number of tax breaks for specific industries that were important to gain GOP Senators’ votes.
If we measure the result of this process against the negotiating positions of the two parties going into this end game, it would appear the GOP did much better than the President. However, the President appears to be emerging as the winner politically as a result of getting GOP Members to vote to allow taxes to go up on at least some taxpayers. The value of the victory remains to be seen. Very tough negotiations are coming up in the next three months on sequestration, the debt ceiling and fiscal 2013 appropriations bills. Even with slightly reduced numbers in the 113th Congress, the GOP will have several leverage points along the way during this period.