Congress has avoided going over the so-called fiscal cliff for now -- but the solution comes at a cost of nearly $4 trillion in foregone revenue over the next 10 years.
NBC's Domenico Montanaro reports that while some are reading into the House Speaker John Boehner-Majority Leader Eric Cantor vote split, there isn't likely a Machiavellian undermining of Boehner at play by Cantor.
In Tuesday’s climactic late-night vote, the overwhelming House majority made some clear policy choices: against income tax increases for most people, against fundamental changes in the major drivers of federal spending (entitlement programs), and against cuts – at least immediate cuts – in non-entitlement spending.
So what policies and interests were the winners and losers? Here’s an assessment:
Loser: The power of “leverage.” Since they took over the House in the 2010 election, Republicans haven’t figured out a way to use their political clout to persuade or nudge Obama into what they say they most want: changes in entitlement programs and therefore a slower increase in spending. Confrontation tactics and threats to not raise the federal borrowing limit led to the Budget Control Act of 2011, but then some Republicans, joined by almost all Democrats, voted Tuesday to not allow that law to start biting.
Conversely, even with his re-election on a platform of raising taxes on single earners over $200,000 and married couples with incomes over $250,000, Obama was unable to use his leverage to get what he really wanted and ended up settling for a partial victory.
Tuesday’s final vote that had just 85 Republicans in support, including House Speaker John Boehner but not some of his top lieutenants, also unveiled something of a split within the party that could hamper GOP success in negotiations in the next few months on the debt ceiling.
Rep. Chris Van Hollen, D-Md., joins Morning Joe to discuss the last-minute agreement reached by the House on New Year's Day. The New Yorker's John Cassidy also joins the conversation.
Loser: Deficit reduction. If deficit reduction is what voters want, the bill passed by the House and Senate will disappoint them.
It will cause a loss of nearly $4 trillion in tax revenues over 10 years – compared to the projected revenues if Congress had simply done nothing and allowed the law on the books in 2012 to expire.
That $4 trillion will need to be found somewhere if Congress wants to reduce budget deficits in future years and hold down the debt-to-national income ratio.
Erskine Bowles and Alan Simpson, the heads of President Barack Obama’s commission on fiscal policy and now the heads of the Campaign to Fix the Debt, said after the House vote that “Washington missed this magic moment to do something big to reduce the deficit, reform our tax code, and fix our entitlement programs…. Yet even after taking the country to the brink of economic disaster, Washington still could not forge a common-sense bipartisan consensus on a plan that stabilizes the debt.”
Winner: The Washington, D.C. culture of tax breaks for special interests.
Despite much rhetoric from Obama, Boehner, Bowles and Simpson, and others about abolishing tax preferences and simplifying the tax code, the bill passed by the House and Senate preserves and extends 60 specific credits, preferences and other benefits for targeted groups and industries.
In one sense, this is a tribute to the interests and lobbyists who have worked diligently to advocate for these provisions; in another sense it reflects the desire of members of Congress to use their power to shape the tax code for the benefit of favored groups.
Some of the tax breaks are minuscule in budget terms: a one-year extension of an economic development tax credit for American Samoa will cost only $62 million in lost revenue, according to the official scorekeepers for tax legislation, the staff of the Joint Committee on Taxation.
President Obama will sign the "fiscal cliff" legislation approved by a divided House of Representatives, preventing middle class tax hikes and huge spending cuts that many feared could have pushed the economy into a new recession. NBC's Kelly O'Donnell reports.
But some of the provisions are especially significant for particular industries: a two-year extension of tax credits for blenders of biodiesel and renewable diesel is worth $2 billion.
Anne Steckel, vice president of federal affairs at the National Biodiesel Board, said, “Because of this decision, we'll begin to see real economic impacts with companies expanding production and hiring new employees."
A study conducted for the National Biodiesel Board by economics consulting firm Cardno ENTRIX found that the biodiesel industry would support more than 112,000 jobs with the tax credit in place compared to 82,000 without it.
Due to another provision of the bill, taxpayers in states with sales taxes get a one-year extension of their ability to deduct their state tax payments on their federal tax return. That’s worth more than $5 billion to them – and a loss of the same amount to the Treasury. This is especially valuable to people in states with no state income tax, such as Nevada and Florida, where much of the state revenue comes from relatively high state sales taxes.
NBC's Domenico Montanaro reviews the fiscal cliff deal and analyzes what it means for the future.
As bargaining between Obama and GOP congressional leaders plodded on into December, it seemed that there was never any real likelihood that the year-ending legislation was the moment for fundamental tax reform. That fundamental reform is supposed to come later this year, according to the chairmen of the House and Senate tax-writing committees. But the ability of special tax preferences to survive year after year indicates that old tax-favoritism habits will die hard, even if Congress embarks on tax reform.
Loser: “Certainty.” A favorite theme of members of Congress on both sides of the aisle was the need to end the uncertainty over fiscal policy so that business owners and investors could make decisions about hiring and deploying their capital.
Both Obama and House Ways and Means Committee Chairman Dave Camp, R-Mich. used the word “permanent” to describe the income tax provisions in the bill.
Obama said on New Year’s Eve that Republicans vowed they “would never agree to raise tax rates on the wealthiest Americans.” But he said the bill “would raise those rates and raise them permanently.”
And Camp said after Tuesday’s vote that “We have acted to make those (2001 and 2003) tax cuts permanent – protecting middle-class Americans from the higher tax rates that were in place when President Bill Clinton occupied the White House.”
Former Rep. Jim McCrery, a tax lobbyist with Capitol Counsel in Washington and former Republican member of the House Ways and Means Committee, said “’permanent’ simply means that there’s no sunset provision… It does not mean by any stretch of the imagination that those provisions will be in the tax code forever. In fact, most people anticipate a very aggressive effort to reform the tax code in an overarching way” in the new Congress that convenes Thursday.
History argues against anything being permanent in the tax code. The top personal income tax rate has changed seven times in the past 30 years and other tax provisions have changed even more frequently.
Winners: Taxpayers earning less than $250,000, and joint filers earning less than $300,000.
Most workers won’t be paying higher income taxes. For workers in the $50,000 to $75,000 range, the bill represents roughly a $1,500 income tax cut – compared to what their tax liability would have been if Congress had allowed Clinton-era tax policies to return as they were scheduled to do on Jan. 1.
While tax rates will not go up for most, people making more than $250,000 will face a reduction in the amount they can deduct and in the value of their personal exemption. And those above $400,000 income face higher income tax rates, with the top marginal rate increasing from 35 percent to 39.6 percent.
And upper-income investors are already facing an increase in the tax on capital gains enacted in the Affordable Care Act. The top capital gains tax rate will go from 15 percent to 23.8 percent.
But overall, 92 percent of the tax increase will fall on tax filers with incomes over $1 million, according to the nonpartisan Tax Policy Center. Contrary to rhetoric from some members of Congress, it’s not only the middle class who are being shielded from paying more for their government – it’s upper-income people as well. (Median annual U.S. household income is about $51,000.)
Winner: Traditional Social Security funding. There was bipartisan agreement to restore the 6.2 percent payroll tax which – in a bid to stimulate the economy – had been cut to 4.2 percent in 2011.
Going back to a 6.2 percent rate reverts to longstanding policy of having a dedicated source of tax funding for Social Security. For a worker making $60,000 a year, this decision will mean $23 a week or $1,200 a year in higher taxes. But it also means Social Security will not be borrowing general tax revenues to make up its shortfall as it had been doing in 2011 and 2012.
The original version of this story incorrectly said the extension of the biodiesel tax credit is for one year. It is extended for two years.