With Cliff Averted, Attention Turns to Deficit

Within hours of the House approving the American Taxpayer Relief Act of 2012 (HR 8 ), President Obama and congressional leaders turned their attention to the country’s mounting federal debt. While the measure, which Obama said he will sign, postpones automatic spending cuts for two months under the sequester order, lawmakers now have to determine how to replace those cuts while also raising the debt ceiling and funding the federal government.

“I think we all recognize this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody,” said the president in a statement immediately following the House vote. He added, “The fact is the deficit is still too high, and we’re still investing too little in the things that we need for the economy to grow as fast as it should.” At the same time, Obama warned Republicans that large spending cuts would not help grow the economy. Instead, they must go hand-in-hand with further reforms to the tax code, he said. He then issued a sterner warning that he would not compromise on raising the debt ceiling, which the Treasury announced last week has already reached its limit. “I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” stated the president.

The battle over the debt ceiling could prove more rancorous than the fiscal cliff debate, as furious Republicans, still stinging from the defeat, lashed out at Democrats for perpetuating the so-called tax-and-spend cycle. House Ways and Means Committee Chairman Dave Camp, R-Mich., issued a statement accusing the White House of running up the country’s debt. “With the revenue piece settled, Washington must now turn to solving the rest of the fiscal cliff—the out-of-control spending that has led to record debt and deficits under President Obama,” stated Camp. The top tax-writer said the Ways and Means Committee plans to lead the effort to reform the tax code to make it simpler and fairer for families and small businesses.

Appearing on MSNBC’s “Morning Joe” on January 2, Sen. Pat Toomey, R-Pa., blasted Democrats for wanting to raise taxes as opposed to making significant spending cuts. “We will only solve this problem when we finally get the spending under control. And, the debt ceiling, and after that, the continuing resolution expiration, those are the vehicles that give us the opportunity to insist on making progress on the real problem,” said Toomey.

Erskine Bowles and Alan Simpson, co-founders of the Campaign to Fix the Debt, issued a statement criticizing the fiscal cliff deal, saying Congress essentially kicked the can down the road. “The deal approved today is truly a missed opportunity to do something big to reduce our long-term fiscal problems, but it is a small step forward in our efforts to reduce the federal deficit. It follows on the $1-trillion reduction in spending that was done in last year’s Budget Control Act (P.L. 112-25 ). While both steps advance the efforts to put our fiscal house in order, neither one nor the combination of the two come close to solving our nation’s debt and deficit problems. Our leaders must now have the courage to reform our tax code and entitlement programs such that we stabilize our debt and put it on a downward path as a percent of the economy,” read the statement.

HR 8 permanently extends middle-class tax cuts and unemployment insurance benefits, and expands the child care tax credit, the Earned Income Tax Credit and college tuition tax credit. The agreement also raises $620 billion in revenue with the restoration of the 39.6-percent income tax rate for individuals with incomes above $400,000 per year and married couples with combined incomes above $450,000 per year. The tax rate for estates worth over $5-million per person would increase from 35 percent to 40 percent. HR 8 also provides a permanent fix for the alternative minimum tax.

By Jeff Carlson, CCH News Staff

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Wolters Kluwer Tax and Accounting

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