Fiscal cliff averted, more complications to come

by: WSBTV.com<\/a> web staff Updated:

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WASHINGTON —

Onward to the next fiscal crisis. Actually, several of them, potentially. The New Year's Day deal averting the "fiscal cliff" lays the groundwork for more combustible struggles in Washington over taxes, spending and debt in the next few months.

President Barack Obama's victory on taxes this week was the second, grudging round of piecemeal successes in as many years in chipping away at the nation's mountainous deficits. Despite the length and intensity of the debate, the deal to raise the top income tax rate on families earning over $450,000 a year — about 1 percent of households — and including only $12 billion in spending cuts turned out to be a relatively easy vote for many. This was particularly so because the alternative was to raise taxes on everyone.

But in banking $620 billion in higher taxes over the coming decade from wealthier earners, Obama and his Republican rivals have barely touched deficits still expected to be in the $650 billion range by the end of his second term. And those back-of-the-envelope calculations assume policymakers can find more than $1 trillion over 10 years to replace automatic across-the-board spending cuts known as a sequester.

"They didn't do any of the tough stuff," said Erskine Bowles, chairman of Obama's 2010 deficit commission. "We've taken two steps now, but those two steps combined aren't enough to put our fiscal house in order."

In 2011, the government adopted tighter caps on day-to-day operating budgets of the Pentagon and other cabinet agencies to save $1.1 trillion over 10 years.

The measure passed Tuesday prevents middle-class taxes from going up while raising rates on higher incomes. It also blocks severe across-the-board spending cuts for two months, extends unemployment benefits for the long-term jobless for a year, stops a 27 percent cut in Medicare fees paid to doctors and prevents a possible doubling of milk prices.

The alternative was going over the cliff, an economy-punching half-trillion-dollar combination of sweeping tax increases and spending cuts. Despite the deal, the government partially went over the brink anyway with the expiration of a two-year cut in Social Security payroll taxes of two percentage points.

Action inside a dysfunctional Washington now only comes with binding deadlines. So, naturally, this week's hard-fought bargain sets up another crisis in two months, when painful across-the-board spending cuts to the Pentagon and domestic programs are set to kick in and the government runs out of the ability to juggle its $16.4 trillion debt without having to borrow more money.

Unless Congress increases or allows Obama to increase that borrowing cap, the government risks a first-ever default on U.S. obligations.

 

Dems and GOP split on fiscal cliff vote

Congress may have stopped automatic tax increases for now, but the last-minute Washington compromise is really just a postponement.

Channel 2's Lori Geary spent much of the day Wednesday reaching out to members of Georgia's congressional delegation.

"I think overall we did good," said Rep. David Scott, D-Atlanta.

"We have to draw a line in the sand and stop this foolishness," said Rep. Phil Gingrey, R-Atlanta.

Both congressmen represent portions of Cobb County. Scott, a Democrat, voted yes on the last-minute deal that allowed the U.S. to avoid the so-called fiscal cliff.

"It doesn't please everyone, but what is important is we move forward in this year, giving the American people confidence," Scott said.

Gingrey, a Republican, couldn't disagree more. He voted no, saying it just delays the inevitable.

The deal may have made the Bush tax cuts permanent for 98 percent of the American people, but there was no long-term plan to rein in spending.

"At some point, we have to have, let's call it a Braveheart moment and fight to the death until we have to, but finally get the job done, and that's the way I felt," Gingrey said.

"This bought us not even a full 60 days," said Channel 2 Action News political analyst Bill Crane.

He points to the looming debt-ceiling debate expected to play out in March when the country reaches its borrowing limit yet again.

"You just can't keep taking money that doesn't exist and handing it out when, again, you're just handing the debt to the future generations," Crane said.

The issue of sequestration looms. Those massive automatic spending cuts that were set to take effect Jan. 2 were delayed until March 1.

"I think the House members primarily, certainly myself, are thinking long-term and we can't continue to kick the can down," Gingrey said.

Both of Georgia's U.S. senators, Saxby Chambliss and Johnny Isakson, both Republicans, voted yes on the deal, basically saying no deal at all would have been worse for the country.

Georgia's Republicans in the House disagreed. All eight voted no.

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Fiscal cliff bill included many perks

Supporters said it rescued the middle class and the unemployed.

But the landmark fiscal cliff deal includes some special bonuses for Hollywood, NASCAR and even the booze industry.

Channel 2's Scott MacFarlane has been poring over the fine print of the legislation approved by Congress this week.

Deep in the 157-page fiscal cliff legislation MacFarlane found Congress extended a tax break for rum produced in both Puerto Rico and the Virgin Islands.

Hollywood gets a special deal, too. The bill included tax breaks for certain "film and television productions." That loophole will cost an estimated $266 million this year.

Even NASCAR received a special tax break for the construction of new raceways, which will cost taxpayers an estimated $46 million this year.

MacFarlane found mining companies that install better safety equipment will also get a tax deduction. Railroad companies that improve their tracks get a tax break.

The tax breaks have become ammunition for the 100-plus congressional leaders who voted the deal down.

"Tax breaks for rum producers, for NASCAR. Did that bother you?" MacFarlane asked Rep. Phil Gingrey, R-Atlanta.

"It does bother me. Excise taxes from rum production coming from the Virgin Islands, all it does is show people we're just throwing around money, picking winners and losers," Gingrey said.

The rum tax break is said to help Puerto Rico's economy. The motion picture industry said tax deductions create jobs and tourism.

But government watchdogs question if everyone who voted on the bill actually knew these tax deals were included.

"The benefits are very, very big benefits concentrated for the special interests that get them. But the costs are spread among the entire American people," said political analyst Phil Kerpen.

Also in the fine print, MacFarlane found tax breaks for people who use two-wheeled electric scooters, and companies that use algae for "feedstock."

Those breaks remain in effect through the end of the year.

MacFarlane asked the senate finance committee, which drafted the tax deals, for a comment about why the narrow tax breaks were included in such a last-minute, high-stakes bill.

MacFarlane has not received an answer so far.

 

What the deal means for your wallet

Channel 2's Erin Coleman sat down with a tax expert Wednesday who said most taxpayers dodged a serious bullet.

Tax expert Merry Brodie said the average Georgian will not have to pay an extra $2,500 to $3,000 in taxes now that the legislation has passed.

"It's generally a very good thing. The deductions that we're used to are still in place," Brodie said.

The late-night deal in Washington will shield millions of taxpayers from tax increases set to take effect this month.

Brodie said the savings will be big.

"A lot of the credits for children, child tax credit, earned income credit and tuition credits, those all got extended. That's huge," Brodie said.

For a family with three kids, that means mom and dad can still get the $3,000 tax credit. One of the biggest impacts of the bill: 30 million middle- and upper-middle class income taxpayers will be saved from paying the alternative minimum tax rate of 26 percent.

The bill also eliminated the marriage penalty, meaning deductions for married couples will be the same as if it were two single people.

"The devil is in the details with this whole plan," Brodie warns. "Not everything has been identified that's going to change, so we know about the big things, but sometimes the little things mean more."

Teachers will be able to claim out-of-pocket expenses for classroom supplies. Benefits are now extended for the long-term unemployed.

In Georgia, that means 68,000 people will keep their federal checks.

Congress did not extend the payroll tax holiday. That means 2 percent more will be taken out of  paychecks for Social Security.

Also, high-income earners who take in more than $400,000 a year -- $450,000 for couples.

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