After missing the midnight deadline, Congress and the President have technically sent the nation over the fiscal cliff, meaning higher tax rates are already in effect for all income tax brackets. But the Senate’s deal, brokered by Senate Republican Leader Mitch McConnell (KY) and Vice President Joe Biden, would target the tax increases on those making more than $250,000.
The Senate voted 89-8 to limit deductions for taxpayers making more than $250,000, which would raise their taxes, and to hike tax rates for those making more than $400,000.
As Heritage has pointed out, trying to tax the top income brackets to close the deficit is impossible. To overcome the massive federal deficit, top earners would have to be taxed at more than 100 percent. And J.D. Foster, Heritage’s Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, reminds us that President Obama has already raised taxes on “the wealthy”:
Never mind that Obama already raised taxes on upper-income taxpayers through the 3.8 percent Medicare surtax imposed under Obamacare. Never mind that tax rate hikes would weaken an economy stumbling so badly the Federal Reserve doubled its risky efforts to keep the economy from recession. Never mind Obama’s approach would likely put the kibosh on any hopes for tax reform. Never mind the resulting revenues would be a small drop in a very big bucket compared to projected budget deficits. Never mind that the only justification for higher taxes is spite and envy to be exercised through the extortive power of the federal government.
Some of the key points in the Senate deal, which could go to the House as early as today:
- Raises taxes on incomes over $400,000 for individuals and $450,000 for households
- Raises taxes on investment income for those taxpayers as well
- Limits tax deductions for incomes over $250,000—raising their taxes, too
- Increases the death tax rate for estates over $5 million
- Extends long-term unemployment benefits for one year
- Postpones sequestration’s automatic spending cuts (including those to defense) by two months
Meanwhile, the United States also ran up against the debt ceiling yesterday. Treasury Secretary Tim Geithner said the Treasury would do some short-term creative accounting to make sure the country doesn’t default on its loans, which will buy two months before lawmakers have to fight it out again over increasing the debt limit.
The deal does nothing to address the reasons that the U.S. budget is out of control. Its focus on tax hikes rather than spending cuts is completely the opposite of what the country needs. As Heritage’s Romina Boccia explains:
Federal spending on entitlements and interest on the debt drives the federal budget crisis. Together the three major entitlements of Social Security, Medicare, and Medicaid (including Obamacare), as well as net interest, make up more than half of all spending in the federal budget today. Their share of the budget will grow to over two-thirds of all spending in 10 years. By 2025, the major entitlement programs and net interest together will eat up all tax revenues collected in that year.
Hiking taxes simply isn’t a solution. Until Congress and the President pursue serious spending cuts, the country and the budget will keep chugging in the same direction. And that’s certainly no cause for celebration.
- Forbes has a breakdown of the Senate’s fiscal cliff deal.
- “A scathing Senate committee report on the Benghazi terrorist attack faults the State Department for failing to adequately respond to mounting security threats in the lead-up to the assault,” reports Fox News.
- Doctors say Secretary of State Hillary Clinton has a blood clot near her brain but will recover.
- Iran is conducting annual missile tests.
- The fiscal cliff isn’t the only big change kicking in today—many employers will face the harsh decisions brought by Obamacare’s HHS mandate. Heritage’s Sarah Torre has the details.
Source material can be found at this site.