Deal stalls resolution to crisis
At 11 p.m. on New Year's Day, Congress passed the American Taxpayer Relief Act of 2012. It was the culmination of months of embarrassingly public posturing and political negotiation.
Many Americans are concerned deeply at the excessive levels of government spending and debt. In particular, many realize that entitlement programs such as Medicare and Social Security are set on an unsustainable course. An examination of the Tax Relief Act shows that these concerns have been pushed into the future. The Obama administration claims it is an incremental step. In fact, it is merely a stall tactic.
A $600 billion tax increase for America's wealthiest citizens will hit job-creating small business owners hard. But it was $1 trillion below President Obama's initial demand.
Individuals with incomes less than $400,000, or $450,000 as a family, saw their current income, estate, capital gains and dividend tax rates frozen. But for how long, in light of today's environment?
Meanwhile, 77 percent of working Americans will see their net pay reduced as a result of the expiration of a 2 percent Social Security payroll tax break adopted during the financial crisis.
Republicans achieved very little, other than a long overdue adjustment applied to the Alternative Minimum Tax, tying it to inflation. The essential restructuring of entitlement programs, government spending curbs and the chronic debt ceiling were kicked down the road for what will likely be another political showdown in less than two months.
In short, Congress approved a deal that raised government revenue by $620 billion while increasing — not decreasing — spending by $288 billion. This resulted in a net $332 billion revenue increase.
Treasury Secretary Tim Geithner has warned that the government will hit its official debt ceiling of $16.4 trillion within the next two months. Of course, this does not include off-balance sheet debt — government guarantees and unfunded Medicare and Social Security obligations amounting to well over $100 trillion.
And the government continues to run a $1.089 trillion a year deficit.
Put into perspective, the $332 billion increase in revenue achieved by Congress on Jan. 1 amounts to only 30 percent of the annual government deficit. Further, it accounts for only 2 percent of the “official” Treasury debt.
From this it can be seen that the so-called “fiscal cliff” was merely a slope. It is dwarfed by the far larger and more serious “entitlement cliff,” which looms larger with every day a solution is delayed.
Although Republican achievements in the fiscal cliff negotiations were minor, Obama is expressing a determined unwillingness to negotiate over the debt limit. This threatens the dollar with further debasement, the economy with recession and ordinary citizens with increased future taxes.
Crucially, Obama has exposed a fundamental split within the Republican Party between genuine Republicans and those who are Republicans In Name Only, or RINOs. This should forewarn investors and business people that the debt ceiling likely will be raised without meaningful restructuring of entitlements or taxation.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at email@example.com.