Business & Economy

Congressional delegation: Fiscal cliff deal is a step, but long way from “grand bargain”

Rep. Peter Welch, Sen. Bernie Sanders and Sen. Patrick Leahy got together Monday to talk about the farm bill passed through the house in June. VTD Photo/Taylor Dobbs
Rep. Peter Welch, Sen. Bernie Sanders and Sen. Patrick Leahy got together in July to talk about the farm bill passed through the House in June. VTD Photo/Taylor Dobbs

All three of Vermont’s congressional delegates backed this week’s bill to avert the so-called fiscal cliff — a bundle of self-imposed draconian spending cuts and income tax hikes meant to propel Congress into action to address growing federal debt.

But none of the congressmen are celebrating.

While the bill extends unemployment benefits and farm bill dairy provisions, employed Vermonters can expect higher payroll taxes than they’ve enjoyed the past two years. And the fiscal bill does nothing to address some of the nation’s most urgent fiscal problems.

“This was a positive step, but that’s all it was: a step,” said Vermont Rep. Peter Welch. “It was a long way from the grand bargain we need.”

At the crux of the bill is the cementing of Bush era income tax cuts for individuals making less than $400,000 and couples making less than $450,000. As Forbes broke down the deal, U.S. citizens earning more than those thresholds will pay 39.6 percent on the excess and 20 percent on capital gains and qualified dividends, which is up from 15 percent.

The Tax Policy Center estimates that most people earning $500,000 to $1 million will pay an average of $10,000 more in 2013. For 98 percent of those earning more than $1 million annually, their taxes will go up roughly $125,000.

Tom Kavet, economist for the Legislature, said in Vermont that top income bracket isn’t particularly stable.

“When you talk about high-end taxpayers, they don’t always stay in that income class,” he said. “There’s a lot of in and out. Somebody will sell an asset or a business and they’ll be in the top 1 percent for a year or two years, and then they’re out of it.”

What the deal did not do was extend a 2 percent reduction in employee payroll taxes for Social Security, which was part of the 2010 stimulus package. That fiscal luxury lapsed at the start of the new year.

The bill also did not raise the nation’s debt ceiling of $16.394 trillion, which it hit on New Year’s Eve. It also did not address major decisions surrounding federal spending.

As the Wall Street Journal put it, Congress avoided one high-risk scenario and is heading full-speed into another.

“The compromise dodges one cliff, but it sends Congress barreling toward another,” wrote the Journal. “In two months, the delayed $110 billion in spending cuts will again kick in. At the same time, the U.S. will face the need to increase its borrowing limit, a change that can only be made by Congress. That sets up another rancorous fight, one with potentially more damaging consequences.”

Sen. Patrick Leahy panned the Republican-controlled House for taking so long to reach a resolution and leaving many questions up in the air.

“This was a made-in-Congress crisis imposed on everyone by factional obstructionism in the House,” Leahy said. “Uncertainty is corrosive throughout the economy. Farmers need to plan not just for the next month but for the next year. Uncertainty affects doctors and their Medicare patients, families who need to know if they can count on continuation of the education tax credit, and businesses contemplating expansion.”

Both Leahy and Welch, however, commended the House for coming through in the bitter end. While the bill received widespread Democratic support, the Republicans split the vote with 85 delegates for the bill and 151 against it (the bill passed the House 257-167). This split, said Welch, is significant. Since the 1990s, Republicans haven’t ushered a bill to the floor without the majority of the party’s support.

“What that meant, in effect, is that the very right-wing of the Republican Party almost had veto power over what would be considered by the whole House of Representatives,” said Welch.

With the breaching of that rule, Welch said he was more optimistic that the House could make progress hurdling the hefty financial obstacles that lay ahead.

For Leahy, one of the biggest victories of the fiscal cliff deal was language extending the farm bill for another nine months. Without this language, the government would have reverted to a fiscal formula from 1949 that set the base price of milk at double its current market value. If that had happened, the price of milk for consumers would have skyrocketed. Many congressmen hope to pass a new five-year farm bill for the first time in decades.

Meanwhile, Sen. Bernie Sanders issued a statement supporting the extension of federal tax credits for utility-scale wind production.

“This is a win-win for our economy and our environment,” he said. “In Vermont and across the country, hundreds of wind manufacturing plants already are producing wind turbines.”

More of an influence on Vermont’s economy than any one of these measures, Kavet opined, is that Congress came together to pass legislation that protects lower tax rates for the vast majority of citizens.

“It’s not just the certainty. There are measures, like making tax cuts permanent for 99 percent of the population, that also help support the economy, and the tax increases are a step toward deficit reduction,” he said. “That larger macroeconomic effect will be more impactful to Vermont than any specific provisions.”

Jeb Spaulding, secretary of Gov. Peter Shumlin’s administration, said that this added certainty might give Vermonters the financial confidence needed to make new investments. But, he said, Vermonters will likely feel the pinch of the restored payroll tax.

“The agreement reached by Congress and the president is a positive step, and I don’t want to minimize that, but we are not out of the woods by a long shot,” he said. “The agreement does not have a significant impact overall for state revenues, but adds some certainty on the tax side. … The reversion of the payroll tax to 6.2 percent will not be helpful for working Vermonters, but we always knew that the decrease was supposed to be temporary.”

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Andrew Stein

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  • David Usher

    The good news is that our Congressional delegation sees the recent fiscal cliff avoidance as mostly patchwork legislation.
    The bad news is none of them are advocating for serious and lasting spending reform that reduces the impact of government in our economy and in our lives. Sadly, they all favor more rather than less government spending and no realistic way to pay for it except increasing debt.

  • Lance Hagen

    I am convinced after watching the ‘congressional circus’ over the past few years that the majorities in congress have no interest in cutting spending. They just pay ‘lip service’ to deficit spending, claiming it is a ‘serious problem’, but fail to take any action. Or they ‘kick the can down the road’ and claim this is progress (note Peter Welch’s statement). Remember that the latest ‘standoff’ on taxing the, so called, rich only address 6-10% of the annual deficit spending (depending what numbers are assumed in new revenue).

    Nowhere over the past months, have we heard Leahy, Sanders or Welch provide specific ideas as to what or where spending cuts should be made to address what they claim is a ‘serious problem’. Yet, they have made specific statements as to where they don’t want cuts, to provide comfort to their flock. They also continue to support ‘bloated’ programs that fail or are losing large amounts of $ (think about their defense of the US Post Office).

    We have created a culture in Washington, that if you give to me, I will vote for you and let you keep your job. They are like a person in the bar that shouts ‘Drinks for the house’, but fails to mention they are using your credit card to cover the tab.

    I am bringing to think the Alex Fraser Tytler was right when he stated
    “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits … with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”

  • Jim Barrett

    Typical responses from the three stooges………it was someones fault but not them………….! This is the bunch who always declares that the other side won’t give them the trillions they want to spend to buy more votes. Just like Obama they have the same talking points, blame anyone but themselves. THIS WAS A TAX INCREASE AND NOT ONE OF THESE PHONIES CALLS IT THAT WAY.

  • K.J. Nelson

    Bernie Sanders’ foolish support of industrial wind is to his everlasting shame. Industrial wind has nothing to do with protecting the environment or creating jobs. All three of our representatives failed Vermont, and America, when they refused to support stripping $12 BILLION in taxpayer handouts to industrial wind and other grubbers from that train wreck of a fiscal bill. Our state legislators have announced a proposed moratorium on these wretched and useless wind turbines and none too soon. We, the people (remember us?), need protection from the three stooges in DC and the three stooges over at the Public Service Board.