Posted by: SWL | January 1, 2013

Obama, Special Interests Biggest Winners in Fiscal Cliff Deal

updated 1/2/13, 3:40 PST

Would they, or wouldn’t they pass a bill to keep the US from falling off the “fiscal cliff”? That was still the question as 2013 began on the east coast. But today we have the answer.

On New Year’s Eve, about midnight in Washington, news outlets began reporting that a deal had been reached between the White House and the Senate. Later it was reported that VP Joe Biden and Senate Minority Leader Mitch McConnell had negotiated a deal between Democrats and Republicans without Senate Majority Leader Harry Reid. The Senate approved the legislation about 2 a.m. eastern time. Five Republicans and three Democrats voted against the bill: Michael Bennet (D-CO), Tom Carper (D-DE), Chuck Grassley (R-IA), Tom Harkin (D-IA), Mike Lee (R-UT), Rand Paul (R-KY), Marco Rubio (R-FL) and Richard Shelby (R-AL). [I expected Nevada Senator Reid to vote for this legislation, but was very disappointed that my junior Senator, Dean Heller, voted yes.] There was only ten minutes of floor debate and the bill had not been scored by the Congressional Budget Office at that time.

There was some suspense concerning whether the House of Representatives would vote on the legislation today. Some conservative Republicans wanted to amend the bill to include some spending cuts, but relented when it was clear there was not enough support for that move. Tonight the measure was approved 257-167. (Yes: 172 Dems, 85 Republicans. No: 16 Dems, 151 Republicans. No voting: 3 Dems, 5 Republicans) To see how your congressperson voted, click here.

The biggest problem with this deal is that it did not tackle the need for spending cuts to decrease the federal deficit. The original legislation that created this crisis specified that drastic automatic spending cuts would take effect if a certain amount of spending cuts were not specified by Congress by the December 31 deadline. This deal would extend the deadline two months.

Generally, the terms of the deal are pretty good (except for not addressing the required spending cuts).
* The so-called Bush Tax Cuts are made permanent for taxpayers making less than $400,000 ($450,000 for couples). (No tax increase is good, but this is at least a compromise by both sides.)
* A planned 27% decrease in Medicare payments to doctors will not happen for at least one year, (hopefully preventing doctors from dropping Medicare patients).
* Permanently ties income levels for the alternative minimum tax to inflation.
* Raises the estate tax from 35% to 40%, but exempts the first $5 million now and ties that exemption to inflation. (A “death tax” is ridiculous since the money has already been taxed 2-3 times. Many people now use trusts to avoid the tax. But if the rate must go up, exempting an amount that will cover most Americans is a good move.)
* The 2% temporary cut in the payroll tax is allowed to expire as planned. This is good in general because that tax funds Social Security, and the cut must be restored for there to be any hope of keeping the program solvent.
* Blocks a $900 salary increase for Congress slated for March.
* Extends the college tuition, earned income and child tax credits for five years.

But there are several special interest provisions in this deal that should have been handled in separate legislation. Some are parts of President Obama’s green agenda:
* Money for developing algae as an alternative energy source.
* Extends tax credits for energy-efficient homes and appliances.
* Extends the tax credit for 2-3 wheeled electric vehicles that originated in the Stimulus bill. This provides essentially a rebate of 10% (maximum of $2500) per vehicle.

For me, the most egregious provision is extending an accelerated depreciation model for certain motor sports complexes. One might argue that while energy credits are special interest, they may also be in the best interest of the US. Motor sports complex tax credits serve no national interests.

Other special provisions continue tax credits for one year for businesses that employ Native Americans, build low-income housing, do certain research and development. Also extended is a tax on rum produced in the Virgin Islands and Puerto Rico. (Most of the funds are given to those territories.)

The fiscal cliff deal also
* Extends unemployment benefit eligibility another year for about two million people. If the economy is improving as well as the President said during the election campaign, this should not be needed.
* Raises the capital gains/dividends tax rate from 15% to 20% (23.8% for individuals earning over $400,000). This will impact not only wealthy Americans, but everyone who has retirement funds invested in mutual funds and such.
* Extends the 2008 Farm Bill for one year. (2008 because there has not been an official budget approved since then.)

The Congressional Budget Office says this deal will add $4 trillion to the deficit over the next decade. As many conservatives have been pointing out for weeks, allowing the Bush tax cuts to expire for the wealthy will only bring in $620 billion of new revenue. (And a lot of that is given back through the special tax breaks.)

President Obama is the big winner in this deal. He did have to allow a few more Americans to benefit from the permanent extension of the Bush tax cuts, but he was able to advance his green agenda and had to accept virtually no spending cuts. The only real victory for the Republicans was getting the first $5 million of inheritance exempted from the estate tax.

A concise analysis of the effects of this deal can be found at the Tax Foundation website.

(Special interest provisions from CNN. Some information from



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