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Experts React to Senate Fiscal Cliff Deal

Wednesday, January 02, 2013

 

With the Senate approving a bill just hours after the midnight deadline this week and the ball now in the House's court, political experts dissect the deal currently on the table and who will win and lose if it goes through.

Details of the Deal

The Senate voted 89-8 favor of a deal brokered by Vice President Joe Biden with Republican Minority Leader Mitch McConnell in the early hours of New Year's Day to do their part to avert the so-called "fiscal cliff."

Under the approved Senate bill, which now heads to the Republican-controlled House of Representatives, current tax rates would remain in place for the majority of Americans and would increase from 35 percent to 39.6 percent for individuals earning more than $400,000 and families earning more than $450,000. On the spending cuts side of the fiscal cliff equation, the Senate measure would postpone the sequestration of $110 billion in defense and non-defense spending for two months to allow additional time for less drastic deficit reduction measures to be drawn up.

"I wouldn’t call this deal a win-win or a lose-lose; it is sort of a hodge-podge agreement," said Srinivasan Sitaraman, an associate professor of Political Science at Clark University, noting that President Barack Obama was forced to cave on the $250,000 threshold for tax increases he had campaigned on, the estate tax threshold remains unchanged and the Bush-era tax cuts would now become permanent.

In addition, Sitaraman pointed out, the Senate bill fails to generate the $1.6 trillion in revenues Obama promised, coming up with roughly $600 billion instead, which is unlikely to have much of an effect on the $16 trillion-and-growing federal deficit.

"The sequestration problem has not gone away, merely postponed to March and the debt-ceiling problem has not gone away either," Sitaraman said. "Both these issues will definitely produce ugly battles again in the new term and they are likely to cause enormous headaches and more partisan political bickering."

A Starting Point

Progressive activist and former gubernatorial candidate Grace Ross said the Senate bill is a good first step, but it still falls short of what will be needed to raise the country out of the shadow of the recession.

"The creation of the supposed fiscal cliff, which was an arbitrary deadline created by the Congress for itself, is almost useless because it doesn't deal with the question of how you're going to rebuild our economy," Ross said. "The real question is 'Are they going to make our economy run again?', not 'Are they going to balance the budget?'"

The two-month reprieve from the across-the-board spending cuts of sequestration, Ross said, will hopefully mean lawmakers in Washington focus on creating real economic policy rather than fighting over tax breaks.

"People are always comparing tax breaks for the very wealthy to a payroll tax break," she said, but pointed out equating the two, or tax breaks for lower income earners, is misleading because the higher income earners are taxed in a greater portion of their income and the effect of such cuts or breaks is substantially greater for them than those lower down on the tax scale.

With tax breaks for the wealthy proving ineffective at building the national economy back up, Ross argued for increased government investment in infrastructure, education and the environment as an alternative that will create sorely needed jobs.

Political Winners and Losers

Sitaraman said that both Republicans and Democrats are likely to score some political points from the deal. On the right, the GOP has protected its base, while on the left, Democrats protected unemployment, college grants, social security, and Medicare. On a more personal level, Sitaraman said, the big winners are Biden and McConnell for brokering the deal.

It's still early to claim credit though, with House Republicans voicing opposition to the Senate's bill on New Year's Day.

"I hope that they go with this instead of just punting because they don't like the option they've been offered," Ross said. "The problem is that if they punt and do nothing then we don't even have anybody trying to push the river in the right direction."

Former Massachusetts House Speaker Tom Finneran said that whatever deal finally makes it through both houses of Congress will likely cast Democrats in a more positive light than their colleagues across the aisle.

"Obama's command of the bully pulpit amid the cacophany of voices on the Republican side of things virtually guarantees that Obama gets to take credit for any 'good' that comes out of the deal while the Republicans will bear the brunt of the blame for any shortcomings," Finneran said. "Such is life in the immediate aftermath of a national election. Those who lost get hit right in the chin."

 

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