On the first day of the new year when higher income tax rates were technically going into effect for all Americans, Congress passed a bill to limit the increase in tax rates to those who earn more than $400,000 individually or $450,000 per couple. The bill also increases spending by extending unemployment benefits, fixing the Medicare reimbursement rates for doctors and other health care providers, revising the Alternative Minimum Tax that could have increased taxes for middle income families if not revised and extending various tax credits. The spending cuts that were scheduled to automatically go into effect on January 2, 2013 were postponed until the end of February 2013. Consequently, the bill only addressed taxes and "kicked the can down the road" again on spending cuts; setting up another last minute fight between Democrats and Republicans on where to cut federal spending to resolve the deficit problem at the end of next month.
As it turned out, President Obama seemed to be absent from the final negotiations on the bill that passed. He met with Congressional leaders as the deadline approached within the past week and charged Senate Majority Leader Harry Reid to put a bill on the floor for a vote. This was basically the course of action I urged in my last blog post on December 22, 2012: "If the Democrats want to raise taxes on the wealthy, as Obama and the majority of the public who voted him in for a second term have indicated, why doesn't the Senate bring the House bill to the floor and amend it with a Bush tax rate extension limited to those who make less than $250,000 (or, as Obama seems to now accept, $400,000)..." Why did it take so long for the Senate to take up the bill that the House passed in May?
Unfortunately, Harry Reid again failed to accomplish anything, and Minority Leader Mitch McConnell had to call on his old Senate colleague, now Vice President, Joe Biden to negotiate a deal that could pass. So the Democratic Leader in the Senate and the Democratic Chief Executive of the country failed to take the necessary action to reach a bi-partisan solution for over six months (at least), and the Republican Leader of the Senate and the Vice President had to take charge to reach a last minute bill.
This was not incompetence by the President. Nevertheless, many TV pundits and opinion writers since late on New Year's Day have been describing the Obama's role in negotiating the final deal as a failure in leadership since it was his Vice President and the Republican Leader in Senate who reached the deal to avert the Fiscal Cliff. Many of those opinions are coming from news sources that endorsed Obama for a second term. I even heard a liberal commentator on CNN last night say that "negotiating deals" is clearly not Obama's strong suit. I haven't even seen what Fox News has said about this result yet.
My view is that this is the result Obama wanted. The bill only raises taxes on the wealthy and does not cut spending, which is critical to cutting the deficit. Even though Obama gives lip service to a "balanced approach" (with tax increases and spending cuts) to solving the debt problem, as I noted in my blog post on November 30, 2012, . "The President's continuous campaign for higher taxes on so-called "millionaires and billionaires", without any serious proposals to cut spending, is consistent with his long term political goal of reducing income inequality in America..."
Every public statement Obama made since the election about the looming fiscal cliff focused almost solely on raising taxes on the rich in order to avoid hitting the middle class with tax hikes. He even held an unusual Press briefing with hand-picked middle class people in the Eisenhower Executive Office Building on New Year's Eve afternoon to once again repeat his goal:
"The agreement being worked on right now would further reduce the deficit by asking the wealthiest 2 percent of Americans to pay higher taxes for the first time in two decades, so that would add additional hundreds of billions of dollars to deficit reduction. So that's progress, but we’re going to need to do more. Keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously, the agreement that's currently being discussed would raise those rates and raise them permanently."
The problem is that raising taxes on the top earners is a small fraction of the gap that needs to be closed to cut the deficit, as I showed in my November 30 blog post. Spending cuts are necessary. Now there is another two months to address spending cuts, but Obama will find a way to add taxes to the mix and enrage the conservative "tea party" wing of the Republican Party even more than they are today with the New Year's Day deal.
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