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The Fiscal Cliff – The Work Begins…Theirs AND Ours

 

Referencing a recent article in Bloomberg.com, President Barack Obama and House Speaker John Boehner have a big job ahead of them in the coming weeks. They hope to come together in act of solidarity to work out an agreement to avert the so-called fiscal cliff which happens at the end of this year if no deal is struck.

Obama, claiming a mandate from voters after his Nov. 6 re- election, has called for an immediate tax-cut extension for people earning less than $250,000 and insisted that top earners pay more. Boehner has cited public support for the re- elected House Republican majority and said tax rates must not go up. While both said they were willing to compromise and act quickly, Obama and Boehner have offered no public concessions. Their differences may take weeks to reconcile.

Obama and Boehner will meet at the White House in the next few days, along with House Democratic Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell.

If Congress does not act by the end of the year, $607 billion in automatic spending cuts and tax increases are scheduled to take effect starting in January. They stem from previous decisions by Congress, including from the deal last year to raise the federal debt ceiling and the 2010 extension of tax cuts.

In recent remarks, Obama and Boehner have left open the possibility of agreement on preserving current tax rates while limiting tax breaks for top earners to raise revenue. Such an approach, should it come to fruition, would let Obama claim the higher tax payments he seeks from the wealthy and allow Boehner to avoid the higher rates he calls unacceptable.

Since his re-election, Obama has repeated the outline he laid out during his re- election campaign for a “balanced” approach to cutting the deficit that would include higher taxes on the wealthiest and some spending cuts. Boehner has also outlined the Republican approach to the fiscal cliff: avoid tax rate increases and spending cuts while beginning a process to overhaul entitlement spending and the tax code.

The president wants to let George W. Bush-era tax cuts lapse on income of individuals above $200,000 and of married couples above $250,000. That would push the top tax rate to 39.6 percent from 35 percent. Boehner has emphasized opposition to higher tax rates, rather than talking about higher taxes or higher revenue. He has endorsed the idea of increasing government revenue through an overhaul of the tax code without saying explicitly whether he would support a tax increase or the elimination of tax breaks without a corresponding rate cut.

Obama’s plan to cap tax breaks, which has gotten no traction in Congress, would raise about $584 billion over a decade, compared with the more than $900 billion that would be generated from higher rates on income, capital gains, dividends and estates.

Some Democrats may however insist on higher tax rates. Representative Sander Levin, the top Democrat on the House Ways and Means Committee, has said talk of limits on tax breaks was little more than “glittering generalities” that doesn’t reflect that the biggest breaks, including the mortgage interest deduction, are tax policies and not loopholes. Republicans have said that any additional tax revenue should come through a restructured tax code and from so-called dynamic scoring that relies on revenue from macroeconomic changes generated by the tax overhaul itself.

When pressed by reporters recently, Boehner reiterated his previous statements and said he wanted to preserve flexibility for negotiations with Obama on a deal to avert the fiscal cliff and reduce the federal budget deficit.

The blueprint for a deal to avoid a fiscal nightmare early next year may be found in the failed debt negotiations between Obama and Boehner in mid-2011. The contours of that plan included revenue increases, spending cuts and changes to lower the long-term costs of entitlement programs. Before the talks collapsed, Boehner was willing to accept $800 billion in revenue increases and Obama was ready to settle for $1.2 trillion.

Part of their negotiations on a $4 trillion deficit-cutting plan included a gradual increase in the Medicare eligibility age to 67 and an alternative yardstick for calculating inflation that would reduce annual Social Security cost-of-living adjustments and raise taxes by slowing the annual adjustments in tax bracket thresholds.

Regardless of where the negotiations begin and end, the citizens of this great country need to stand up and have their voices heard. We cannot rely on the leaders of each party to interpret the results of the recent election to benefit their position. I encourage each of us to take the time to contact our respective Senators Harry Reid and Dean Heller and Representatives Shelley Berkley, Mark Amodei and Joe Heck to let them know the importance of resolving this crisis. I know they appreciate hearing from their constituents and letters, phone calls and e-mails (the preferred method I believe) are the best way to let them know that we care and want some action.

 

 






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