Did we miss something as we watched Congress in its last few days of the 112th Congress pass legislation to solve the so-called fiscal cliff? I don’t think so. What we saw was the administration via the vice president and Congress just kick the can—or should I say cans—down the road some more.
We have heard what The American Taxpayer Relief Act isn’t and what it is. It is a bill that raises $620 billion more in revenue over the next decade and trims only $15 billion in spending. Along with that, 125 million workers will have a new tax increase of 2% in their withholding for Social Security, with the expiration of the payroll tax holiday after two years. The effects of that 2% have yet to be felt in the economy, but will be felt in everyone’s household income immediately.
I have heard the deal called a “debacle” for the Republican Party, but in all reality it is a debacle for both parties moving forward. Senate Republican Leader Mitch McConnell in an op-ed piece for Yahoo News wrote, “Was it a great deal? No. As I said, taxes shouldn’t be going up at all. Just as importantly, the transcendent issue of our time, the spiraling debt, remains completely unaddressed. Yet now that the president has gotten his long-sought tax hike on the ‘rich,’ we can finally turn squarely toward the real problem, which is spending.”
The media spin would have you believe there is a fight going on inside the House Republican leadership, with their own members and with the Senate Republicans. That may be true, particularly over spending cuts or lack thereof! But the passage of the Bush-era tax cuts, reforms to the tax rates on estates and investment income, a fix to the alternative minimum tax and extension of the bonus depreciation provisions for another year are all good legislative steps for businesses, particularly dealers. These new provisions, passed and signed into law, have been major legislative issues of NAEDA. We have been supporting these provisions the last few years and they are now codified in law.
Can more be done? Sure. Should more be done? Yes. We believe more is needed, but has only the low-hanging fruit been picked? Tougher issues and decisions are going to have to be made in the 113th Congress.
Entitlement programs, such as Social Security and Medicare and federal spending for defense, farm programs, energy, education, etc., are all going to be discussed in the next round of budget discussions. Just remember that the sequester cuts (about $110 billion in automatic spending cuts) were delayed for two months with the passage of this bill. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, taxing retirement savings when they are moved over.
I believe Sen. McConnell in his op-ed piece summarized pretty well the next discussions that are likely to take place in Congress. He said, “While most Washington Democrats may want to deny it, the truth is the only thing we can do to solve the nation’s fiscal problem is to tackle government spending head on—and particularly, spending on health care programs, which appears to take off like a fighter jet on every chart available that details current trends in federal spending.
“The president may not want to have a fight about government spending over the next few months, but it’s the fight he is going to have, because it’s a debate the country needs. For the sake of our future, the president must show up to this debate early and convince his party to do something that neither he nor they have been willing to do until now. Over the next two months, they need to deliver the same kind of bipartisan resolution to the spending problem we have now achieved on revenue—before the 11th hour.
“When it comes to spending, the time has come to rise above the special interest groups that dominate the liberal wing of the Democratic Party in Washington and to act, without drama or delay. The president likes to say that most Americans support tax hikes on the rich. What he conveniently leaves out is that even more Americans support tax cuts. That’s the debate the American people really want. It’s a debate Republicans are ready to have. And it’s the debate that starts today, whether the president wants it or not.”