After all that talk about falling off the fiscal cliff, you just knew that members of congress would do the right thing, and work out a compromise on the federal budget that would curtail any additional new spending, close generous tax loopholes, reign in entitlements, and take a dramatic whack out of current spending. Isn’t that what congressional leadership is all about, particularly at times of major financial crisis?
But did the congressional leadership (perhaps an oxymoron that could join the ranks of “virtual reality” and “call me, maybe”) of both parties really put the national interest ahead of their party loyalties? The public doesn’t think so. A national poll, taken right after the ”fiscal cliff” vote in Washington, found that the approval rating of Congress had fallen to an all time low of 9 percent. To put this number in perspective, a recent Gallup poll found that polygamy was morally acceptable to 11 percent of the population, with a similar 11 percent approving of the U.S. becoming a communist country. The BP oil spill was OK with 16 percent of the population. Having our life immersed in oil sludge is now more acceptable than the current conduct of congress.
One of the non-negotiable issues with the Republican leadership in congress had been to curtail expenditures. We kept hearing that “there is a spending problem.” The GOP mantra repeated over and over was the George H. W. Bush proclamation of, “Read my lips -- no new taxes.” As negotiations wound down to the final drop dead date of December 31, there immerged support from both parties to stick a tax increase to the rich -- those making more than $450,000 a year.
So what finally happened? The Tax Policy Center, a nonpartisan Washington research group, reported that “77 percent of American households will face higher federal taxes in 2013.” The average tax increase for a worker making $50,000 will approach $1000. That’s because both parties agreed to up the payroll tax on Social Security by 2 percentage points. The payroll tax had been reduced from 6.2% to 4.2 percent in 2011. But congress let this reduction expire. So when you read that only the rich will be getting a tax increase, this applies to only to income taxes, and doesn’t include the increase in the payroll tax that will hit the Average Joe.
The payroll tax increase amounts to much more than chump change. We’re talking some $120 billion dollars in just this year alone. What congress has done is to cause a multi-billion dollar hit to state economies nationwide. In my home state of Louisiana, the efforts by congress last week to allow the Social Security payroll tax to expire will cost Louisiana families over $2 billion dollars. That’s over $2 billion that’s being ripped right out of the state’s economy because of this massive New Year’s tax hangover.
The director for the Institute of Economic Competitiveness at the University of Central Florida, Sean Snaith, put it this way: “It's going to provide a headwind in terms of our recovery that's less money spent on childcare, groceries or clothing. The net effect is it’s going to be a drag on growth.”
Not only were there no closings of tax loopholes, but the flood gates were actually opened much wider. Motorsports entertainment complexes (say NASCAR) received tax breaks that will amount to over $70 million. Now, I sure would like to have “the King,” racecar immortal Richard Petty make a comeback for a few more victory laps. But at the expense of some one thousand dollars out of your and my pocket? I don’t think so.
And how about congress giving the green light for more tax exempt goodies to Hollywood filmmakers to the tune of $430 million and the $222 million to rum producers in Puerto Rico and the Virgin Islands to subsidize local production. And let’s not forget the $15 million windfall to U.S. asparagus growers. The list goes on and on.
The rich guys were no fools in observing the congressional antics. Remember the investment firm, Goldman Sachs? American taxpayers poured over $12 billon into Goldman’s coffers during the “Too Big to Fail” Wall Street bailout to keep the company afloat. The firm normally pays out its big annual bonuses in January. But because of the fiscal cliff deal, Goldman moved up its bonus timetable, paying their top 10 senior executives some $65 million in December, instead of when they would have normally paid them in January, thereby avoiding the new higher tax rates. Slick Goldman. So much for bailout appreciation.
So where will all the new tax income go? Will it appreciably reduce the huge debt that has accrued? Fat chance. As Tom Friedman reported this week in The New York Times: “ At one point last week, the Senate approved a $60.4 billion aid package to help New York and New Jersey recover from hurricane Sandy. That would mean we spent on one storm all the new tax revenue for next year that the House and the Senate just agreed to in the fiscal-cliff negotiations.” So much for reducing the national debt!
All this $4 trillion in new spending along with the tax increases and tax breaks could have been stopped if the House of Representatives would have exercised their legal authority spelled out in the constitution. All revenue bills, tax increases and spending has to originate in the House. (Art. I, §7, cl. 1.) But congressmen in both parties punted, and the democratically controlled Senate, along with the White House, called all the shots.
The country was and still is on the brink of economic disaster. We cannot continue to keep “kicking the can down the road.” If there ever was a time for leadership and political courage, now is that time. Nothing less than the future of the country is at stake.