Fiscal Cliff
Nicolas Neely, Staff Writer
January 9, 2013
Filed under News
The U.S. nearly fell off the fiscal cliff as Pres. Obama and fellow Democrats spent most of December negotiating with Republicans to try and prevent automatic tax increases and spending cuts from taking effect.
Numerous tax breaks and credits were set to expire Jan. 1, and mandatory government spending cuts would be triggered, particularly defense spending, if Congress and the President failed to reach a deal over tax cuts and spending. The so called “fiscal cliff,” a term coined by Securities and Exchange Commission Chairman Ben Bernanke, was set in motion by the Budget Control Act of 2011 that spawned from the Republican-controlled House of Representatives’ deal with Democrats to raise the country’s federal debt ceiling. The deal was made in exchange for future discussions on reigning in what Republicans view as the runaway government spending over the past four years. In 2013, the U.S.’s projected government debt will likely approach $17 trillion dollars.
The tax cuts that were set to expire were the Bush era tax cuts, the 2% Social Security payroll tax cut and certain unemployment benefits, as well as cuts in spending in discretionary spending.
For many, the cause of the two parties’ inability to hammer out a deal until the last minute is the increasing deficit. The deficit occurs when the government’s spending exceeds its incoming revenue during the year. The government has to borrow to make up the difference. Following the President’s reelection victory in November, he has pushed for allowing the Bush era tax cuts to end for those making over $250,000 dollars a year in order to increase revenue. Republicans objected to any tax increases, citing that many small business owners file their income tax returns as individuals. Republicans also noted that raising taxes on those making over a quarter million dollars a year to the Clinton era rate of 39% would only raise about $85 billion dollars annually which would not significantly lower the national debt and instead would harm job growth.
Speaker of the House John Boehner bucked the Republican tea party faction within the House by agreeing to permit a vote on increasing tax revenues on the wealthiest Americans in exchange for comparable cuts in spending. However, despite back room negotiations between Boehner and Democrats, the House plan failed. On Dec. 31, the Democratic-controlled Senate passed a bill that renewed tax breaks for those making under $450,000 dollars and without addressed spending, but allowing the 2% Social Security payroll tax to expire. The next day the House passed the Senate’s version of the bill which the President then signed.
Economists and politicians noted that Congress and the President missed an opportunity to address the nation’s growing fiscal problem. When asked about having the tax fight behind him, Republican Senate Minority Leader Mitch McConnell forecasted more fights down the road over raising the country’s legal debt limit in the next few months. “That’s over,” McConnell said on NBC’s Meet the Press when asked about possible new streams of revenue through taxes or tax code reforms.”We’ve resolved this issue,” McConnell said. “We don’t have this problem because we tax too little, we have it because we spend way, way too much. So we’ve settled the tax issue and now we have to address the single biggest threat to America’s future, and that’s our excessive spending.”
