Year-end Congressional scramble discussion thread (updated)

Members of Congress are in Washington today trying to make last-minute deals to avoid supposedly dire consequences on January 1. So far it appears likely that some kind of one-year extension of current farm policies will pass in order to avoid a huge price spike for milk and problems for agricultural producers. UPDATE: A nine-month farm bill extension was added to the fiscal cliff bill.

Lots of plans are floating around to deal with the so-called “fiscal cliff”: Bush income tax cuts (last extended for two years in December 2010) are set to expire, along with lower payroll tax and estate tax rates. Meanwhile, various budget cuts are due to go into effect in January, including a “sequester” of federal spending on defense and other programs but also lower Medicare payments to doctors. At this point, I would be surprised if we don’t go over the cliff, and I agree with Senator Tom Harkin that no deal is better than a bad deal.

I will update this post throughout the day and evening with news on Congressional voting. After the jump I’ve enclosed some links on the latest proposals floating around the Capitol. Tremendous hypocrisy is on display. If deficit hawks believed their own propaganda, they would embrace higher taxes and lower spending to solve this supposedly dire threat to the U.S. economy. UPDATE: More news is below.

President Barack Obama went on Meet the Press yesterday to blame Republicans for saying no to many proposed deals. I am relieved that House Speaker John Boehner rejected the president’s disgraceful offer earlier this month.

Predictably, Senate Democrats are now willing to go along with Obama’s cave on tax rates, raising them only for income above $400,000 per year (make that above $400,000 per year for individuals and $450,000 for families). Some might say the president was an idiot to give way on that point after he won re-election promising to ask people making more than $250,000 to pay more. My hunch is that he was never sincere about keeping that promise.

Senate Republican negotiators would like to delay the “sequester” cuts for one year, while Democrats want to delay them for two years, offsetting the extra spending with additional revenue from higher income taxes at the very top. The result would be no net deficit reduction.

Senate Republicans have dropped their demand to cut future Social Security benefits by tying them to a “chained” consumer price index. This issue bears watching, though, because Obama wants to cut Social Security as part of a “grand bargain” and has wanted to do so for a long time. Economist Dean Baker made a strong and concise case here against the “chained CPI” for Social Security.

House Republican leaders are not actively engaged in the latest fiscal cliff negotiations but will act if the Senate passes any bill today. I’m guessing that the Senate won’t make a deal on tax rates and spending cuts, but if they surprise me, the “fiscal cliff” bill will fail in the House.

At some point in January or February, the new Congress will cut a deal to avoid most of the spending cuts. My guess is that bargain will do nothing to extend long-term unemployment benefits but will extend the “doc fix” for Medicare reimbursement rates.

Speaking of Medicare, I did not realize that Medicare costs have grown more slowly over the past three years than other health care costs. How stupid for the president to flirt with raising the Medicare eligibility age when we should be letting younger adults buy in to this more efficient health insurance system. Click here for a more detailed case against that idea.

UPDATE: Senator Tom Harkin is livid about the deal being hammered out. Speaking on the Senate floor today, he said  “the direction they’re headed is just absolutely the wrong direction for our country” and “grossly unfair” to the middle class.

“As I see this thing developing — quite frankly, as I’ve said before — no deal is better than a bad deal, and this looks like a very bad deal, the way this is shaking up,” he said.

“This is one point in time where decisions that are made on this so-called deal, decisions that are made could lock in for the next 10 years what kind of a country we’re going to be, what kind of a society we’re going to be,” he added. “So we better be darn careful.”

Harkin said he doesn’t fear going back to the Clinton-era tax rates, “a system of taxation that basically worked very well for our country.” He’s outraged that Congress is “going to lock in forever that $450,000 is middle class in America” when average-income workers are the ones getting “hammered” in this economy.

To the umpteen OFA field organizers and volunteers who kept bugging me about volunteering this year, after I’d politely declined many times: what’s going on in Washington right now is why I had no interest in canvassing or phone banking for Barack Obama. I voted for him as the lesser evil compared to Mitt Romney, but I knew he would not stand for any core Democratic principles or fairness. There are too many good causes and candidates to waste time volunteering for a sellout like this president.

In contrast, I will be out knocking on doors for Harkin in 2014. He’s one of the few Democrats in Washington who consistently makes sense.

Obama gave an absurd 10-minute speech at an early afternoon press conference. He said a deal is within reach but not quite finished yet. He said he would have rather struck a “grand bargain” to address spending as well as taxes, but Congress doesn’t work that way, so they are working on taxes now. He continued to pretend that he is standing his ground on protecting the middle class, even though the deal being negotiated no longer includes any extension in the payroll tax cut. In the new year, Obama promised, we will have “more work to do” on deficit reduction, and he will insist on new revenues as part of the “shared sacrifice”–not just the spending cuts Republicans want.

How could anyone take this man seriously? He said a zillion times during the campaign that taxes will go up on the top 2 percent of income, but he’s now committed to protecting most of that group by preserving the Bush tax rates for ten years on income up to $400,000 for individuals, $450,000 for families.

SECOND UPDATE: Ed Tibbetts of the Quad-City Times pointed out that in 2010, only about 5,000 out of approximately 1.4 million Iowa tax returns reported income of at least $500,000. In other words, under this deal income taxes would go up for only about a quarter of one percent of Iowans.

Unnamed House sources told CNN that leaders are unlikely to bring up any bill that passes the Senate until tomorrow (after the deadline has expired).

GOP sources admitted there is an added benefit to the Senate’s delay: taxes would already be up, so lawmakers could argue that they are voting for tax cuts, as opposed to tax increases.

One GOP source also said that may help get more House Republicans to vote for the deal.

“I wouldn’t overestimate it, but a handful may be the difference we need,” the source said.

THIRD UPDATE: Here’s a fuller story on Harkin’s Senate floor speech, with video.

The Hill’s Erik Wasson summarizes the nearly-final tax deal.

The key part of the agreement would extend Bush-era tax rates for individuals making $400,000 and less in annual income and families making $450,000 and less. Higher incomes will be subject to a 39.6 percent tax rate, up from 35 percent.

The president had wanted the threshold to be $200,000 for individuals and $250,000 for families, while Republicans had pushed for a higher threshold.

But Obama and Democrats won concessions from Republicans to reduce the deductions wealthier taxpayers can use, by imposing rules known as “PEP and Pease.” These tax provisions that limit the deductions wealthier people can use would be reintroduced under the deal. […]

The estate tax would rise to 40 percent from 35 percent for estates valued above $5.1 million. Democrats had sought a 45 percent rate on estates above $3.5 million, while Republicans wanted the current rate extended. With no action, a 55 percent tax would have kicked in on estates valued at more than $1 million.

The deal would also impose new limits on deductions for wealthier taxpayers and generate more revenue from investment income.

It extends the capital gains and dividends rate of 15 percent for those making below $400,000 and families making below $450,000. Rates rise to 20 percent for those making above this threshold.

It would also limit deductions wealthier taxpayers can use to lower their tax burden.  

Click through for more details on “PEP and Pease.”

Looks pretty lousy to me. In two months Republicans will extract more concessions over the “sequester” and the next debt ceiling hike. Democrats won’t have any leverage in the form of an expiration date for the Bush tax cuts.

Zachary Goldfarb shows in this chart that this deal would impose the largest tax increase in decades (though smaller than if we went over the cliff and did not extend any of the Bush tax cuts).

Goldfarb also posted this pie chart showing that the top 5 percent of income earners will contribute less than half of the higher tax bill in 2013. Because the lower payroll tax rate is expiring, lower- and middle-income workers will pay almost as much of next year’s additional tax income as the top 1 percent.

Jonathan Chait points out that this deal complicates future tax reform efforts too.

The basic gist is that President Obama traded away long-term revenue – that is, his best chance to fund the government at adequate levels – in order to keep the economic recovery going. Obama had insisted for months on end he could not accept extending the Bush tax cuts on income over $250,000 a year, and the expiration of the Bush tax cuts gave him the power to back up his pledge. Now Obama has agreed to settle for less revenue – ending the Bush tax cuts on income over $450,000 a year.

He’ll make up some of the lost revenue by reintroducing a complex mechanism called Pep and Pease that reduces income tax deductions for high-income earners. (Read about how it works here. Or don’t. You’re not going to read it, are you?) The key thing here is that this is a worse way for Obama to raise the tax revenue; because, by reducing tax deductions for the rich, it takes money off the table that could be raised by future tax reform. If Obama had raised the revenue through straight rate hikes, as he initially proposed, he could go back later and get more revenue through tax reform. Now he has cannibalized a chunk of any future revenue haul.

What did Obama get in return for giving Republicans smaller tax hikes on the rich? He got a one-year extension of unemployment benefits, wind energy tax credits, and other temporary measures. In other words, he’s buying a little insurance to keep the recovery going in return for sacrificing long-term revenue. That’s a poor bargain but not an awful one.

It looks like there will be enough bipartisan support for this agreement in the Senate. House Republicans would be morons to torpedo the deal, but I wouldn’t be too surprised to see that happen.

Democratic Representative Bruce Braley (IA-01) released this statement today:

“It’s absolutely unacceptable that Congress has failed to prevent a huge tax increase on the middle class and reckless domestic and defense cuts that could threaten our economic recovery.  I’m encouraged by signs of an emerging deal, but it’s shameful that Congress missed this critical deadline.

“There’s a lot of work to be done in the hours and days to come, not only to keep middle class taxes low and prevent reckless cuts, but to tackle other major issues that have been ignored for the last two years.  On all of these issues, whether it’s renewing the Farm Bill or extending tax credits like those for adoption and wind energy production, the only acceptable way forward is for Congressional leaders to put aside their differences and come together.”

Democratic Representative Dave Loebsack (IA-02) struck a similar tone:

Washington, D.C. – Congressman Dave Loebsack released the following statement today after the House of Representatives failed to pass legislation to stop the impending tax hikes and going over the fiscal cliff at midnight tonight.  Earlier this year, Loebsack introduced compromise legislation that would preserve tax cuts for middle class families, small businesses, and family farms in order to avoid going over the fiscal cliff.

“The failure by Congress to act and avoid going over the fiscal cliff is deeply disappointing. Unless a fair resolution to this crisis is found immediately, this inaction will undercut our struggling economy and the foundation of economic growth – middle class families. By refusing to act, Washington is once again taking our economy to the brink. Washington must be working to boost our economy, not undermining economic growth.

“We reached this point because of Washington’s failure to act. Our economy is not a political game. I remain hopeful that a deal can be reached and middle class Iowans will be spared.”

EARLY MORNING UPDATE: The final deal also includes a fix on Medicare payments to doctors, extends the wind energy tax credit, and indexes the estate tax exemption threshold to inflation instead of fixing it at $5 million. What a joke. The minimum wage isn’t indexed to inflation.

The Senate passed the deal by 89 votes to 8 (roll call). Harkin and Grassley were among the three Democrats and five Republicans who voted no. I am shocked that Bernie Sanders of Vermont voted for this agreement. I will add statements from Iowa’s senators as they become available.

Democratic senators insist they won’t make any budget policy concessions tied to raising the debt ceiling next time around. I have a bridge to sell to anyone who believes that.

JANUARY 1 AFTERNOON UPDATE: Still no statement from Grassley’s office, but he did tweet about this today:

When will Wash start work to control spending? Deal failed 2 do so& President made clear he wants more tax increases. Yet prob is spending

And a bit later:

You can’t raise taxes high enouGH to satisfy appetite of Washington to spend$$. Need PResidential leadership 4Fiscal discipline.

LATE AFTERNOON JANUARY 1 UPDATE: House Republicans can’t recognize a good deal when they see it. House Majority Leader Eric Cantor is among those who want to amend the bill to add spending cuts. Trouble is, Senate Democrats say they won’t bring any amended bill out of the House up for a vote.

It looks like the House will vote on whether to amend the bill. If that fails, House leaders may call up the Senate bill for a vote with no amendments. There are enough Democratic votes to pass the bill with a minority of Republican support. Or, there may be no vote in the House at all tonight.

Harkin released this statement on January 1. I have put the most important parts in bold.

“Tonight, at the 11th hour, we find ourselves considering legislation to address a manufactured ‘fiscal cliff.’  Much of this could have been avoided had the U.S. House taken up the Senate-passed legislation to avert tax hikes on 98 percent of Americans.

“Instead, we find ourselves voting on an agreement that fails to address our number one priority – creating good, middle class jobs in Iowa and throughout the country.  Further, it does not generate the revenue necessary for the country to meet its needs for everything from education for our children, to job training, to other critical supports for the middle class.  The deal also makes tax benefits for high income earners permanent, while tax benefits designed to help those of modest means and the middle class are only extended for five years.  In essence, this agreement locks in a tax structure that is grossly unfair to middle class Americans, one which provides permanent tax assistance to wealthy Americans, and only temporary relief to everyone else.

Every dollar that wealthy taxpayers do not pay under this deal, we will eventually ask Americans of modest means to forgo in Social Security, Medicare, or Medicaid benefits.  It is shortsighted to look at these issues in isolation from one another, especially when Congressional Republicans have been crystal clear that they intend to seek spending cuts to programs like Social Security just two months from now, using the debt limit as leverage.

“I am all for compromise, but a compromise that sets a new tax threshold for the wealthiest Americans while neglecting the very backbone of our country – the middle class – is a compromise I simply cannot support. This is the wrong direction for Iowa and our country, and at a time when our fragile economy cannot sustain further damage.”

Braley’s office released this statement on January 1 before any House votes:

“While it’s far from perfect, the bill passed by the Senate early this morning is good for Iowa’s middle class and our economy.  I would support it in its current form, and Speaker John Boehner should end the political games we’re all so sick of and bring it before the House for an immediate vote.

“The legislation would cut taxes for over 99 percent of Iowans, help keep food and milk prices low by renewing the Farm Bill for nine months, encourage Iowa investment by extending the wind energy production tax credit, help more children find loving homes by permanently extending the adoption tax credit, keep doctors practicing in Iowa by preventing a cut in Medicare reimbursements, and reduce the cost of college tuition for Iowa families.  For the first time in 20 years, Congress will have acted on a bipartisan basis for significant new revenue, resulting in the most progressive tax code in decades.

“These are priorities I’ve been working on for years.  Like all Americans, Iowans want Congress to come together to begin addressing the big challenges facing our country.  This bill gives us a chance to prove that Congress is up to the challenge.”

I haven’t seen any public comments from Dave Loebsack or Leonard Boswell but expect them both to vote yes as well.

EARLY EVENING UPDATE: Whip count found insufficient support in the House GOP caucus for an amended bill. The deal approved by the Senate will be brought to the floor.

Republican Party of Iowa Chair A.J. Spiker is urging Steve King and Tom Latham to vote no:

“I am proud of Senator Chuck Grassley and thank him for standing up for taxpayers by voting ‘No’ on the so called “Fiscal Cliff Deal.” The bill passed by the Senate early this morning raises taxes without any meaningful spending cuts. The so called “Fiscal Cliff Deal” will only hurt middle class families, continue out of control government spending and fails to address the $16.5 Trillion Federal deficit [sic]. I strongly urge Congressmen Tom Latham and Steve King to follow Senator Grassley’s leadership and vote ‘No’ on this ill-advised bill when it comes to the house floor.”

I expect a no vote from King. Latham may also end up in the no column, although he would probably support the compromise if Boehner needed his vote.

LATER UPDATE: The final vote in the House was 257 to 167 in favor of the Senate bill (roll call). Typically Speaker Boehner has refused to bring up any bill not supported by “a majority of the majority,” but in this case only 85 House Republicans voted for the deal. Latham and King were among the  151 House Republicans to vote against it. Braley, Loebsack, and Boswell were all among the 172 House Democrats to vote yes. The 16 Democrats who opposed the bill were a mixture of Blue Dogs and progressives.

Braley’s office re-released the statement I posted above. Technically, he is correct that this deal lowers income taxes on 99 percent of Iowans, but many middle-income and lower-income Iowans will pay higher net taxes now that the payroll tax cut has expired. Remember, a large chunk of the extra revenue raised by this deal will come from the middle class.

Loebsack’s office released the following statement.

“What we have seen take place in Washington over the last few months, and especially in the past few days, is nothing short of unconscionable.  This is not a way to run the greatest country on earth. The people of Iowa expect and deserve better.

“Throughout this process my number one goal was to prevent middle class and working families from seeing their taxes go up at a time when millions are struggling to recover.  I have pushed for a big, long-term deal that would also protect small businesses and family farmers.  While this deal is not what I would have preferred, I believe that we must allow it to pass in order for these tax rates to remain the same for those who simply cannot afford to see those rates increase.

“Given tonight’s action merely provides a short two-month reprieve from the artificial deadline the Budget Control Act originally mandated, starting tomorrow, Congress and the President must meet to discuss how we will prevent our economy from sliding backwards and how best to resolve our long-term deficit and debt problem.   I look forward to hearing from Iowans in the coming weeks about how we can best address these issues.  We must lay the groundwork for long-term economic prosperity for hardworking Iowans who want nothing more than to provide a decent life for themselves and their families.”

I will continue to update if I see comments from Latham, King, or Boswell.

For those who want more details about this legislation, here are the major provisions, but that’s not an exhaustive list of what’s in the bill. Matt Stoller explained eight corporate subsidies stashed away too.

The Congressional Budget Office calculated that the deal adds nearly $4 trillion to the deficit over the next decade compared with going over the cliff and not extending any of the tax measures.

FINAL UPDATE: Latham’s office released this statement.

Washington, Jan 1 – Iowa Congressman Tom Latham issued the following statement today after voting against the Senate-amended H.R. 8, a last-minute tax compromise bill that fails to address the nation’s out-of-control spending:

“The White House-Senate compromise contains some good provisions I agree with, such as preventing massive tax hikes on most families and finally making the cuts permanent, extending the farm bill, and maintaining the wind energy tax credit. However, it lacks a critical component: necessary spending cuts to address our exploding debt. Our $3.5 trillion budget is and will continue to be our primary fiscal obstacle, and a bill that increases taxes and fails to even begin to address spending decisions is not the action American taxpayers have asked for.

“In recent weeks, House Republicans put forth revenue increases as part of a balanced plan that would also tackle Washington’s out-of-control spending. Instead of responding in-kind, the President and Senate leadership focused on tax hikes as the centerpiece of any potential deal, and in so doing, they abandoned the historic opportunity to take on deficit reduction in a serious manner.

“Because the final legislation asked everything of taxpayers while not forcing Washington to even begin a single step toward curbing its spending addiction, I cannot support it.”

King’s office released this statement:

King: Tax Hikes Won’t Solve Spending Problem

Washington, DC – Congressman Steve King released the following statement after voting against the Fiscal Cliff deal late last night:

“I could not vote for this bill because, as a whole, it’s bad for our country,” said King. “There are a number of provisions in this bill that I support, such as those addressing the Alternative Minimum Tax, the Farm Bill extension, the Production Tax Credit for wind and biodiesel, and making certain tax policies permanent- but I’m not for the permanent and accelerated growth in our debt and deficit. This bill makes no effort to curb the out of control federal spending that’s to blame. In fact, it proactively puts off, for another two months, the sequestration – the only serious effort to begin reining in federal spending that’s currently on the table. This bill will ensure that the President has yet another opportunity two months from now to pressure Congress for more tax and revenue increases.

The President says he is for a balanced approach to deficit reduction, but this is nothing close to balanced. We cannot tax our way out of the spending dilemma we’ve created. The American people know that Washington has a spending problem, not a taxing problem. We must dramatically cut spending. I opposed this bill because it raises taxes without any plan to reduce the deficit. It simply kicks the can further down the road and ensures the President will have another crack at taxpayers’ wallets while offering no substantive solutions to stop this spending crisis.”

  • Spending

    I know we disagree on this point, but I don’t think 400k is a bad number and people like Tim Kaine wanted to make it 500k as he was campaigning through Virginia.

    To be perfectly honest about it I don’t think Obama is very good at cutting deals no matter what side he comes out on.  

    I think our most progressive members (Sanders, Cardin, Whitehouse) are really the problem when it comes to big deals like this.  They may be very good fits for their states, but I can’t say they fit my views on this matter.

    The most conservative members (DeMint, Coburn, Lee, Paul, Inhofe) are arguably worse, but I wish Conrad and Warner could be the main architects of a economic growth/spending plan.  

    • after Obama made such a big deal

      about holding the line at $250,000, and was re-elected on a promise to keep that bar, it was important to hold the line. The issue isn’t the lost revenue, it’s the fact that Republicans have seen yet again that Obama will never stick to any position. We are in for a lot worse when they start haggling over the sequester and the debt ceiling.

      Tim Kaine was looking for votes in wealthy areas of northern Virginia, but nowhere is $250,000 a middle-class income.

      • Very true

        I suppose we could look back and see if Obama has stayed true to any “major position”  If people wanted to stay home or vote for a more progressive third party, that’s their right.  Obama is a very good campaigner, but if governing is about drawing a line in the sand and not moving that line no matter what..anyone can do that if they are a blind purist.  

        I think he should raise taxes on anyone who makes 200k if not less, I’m not debating whether the Clinton rates were bad, the question is whether you want to work with people or just yell loud enough and try to win.  

        You don’t have to be particularly bright to grow the welfare state/government and it doesn’t take a genius to tear it down.  Taking a rigid position and ignoring the other point of view is pointless.  

        Kaine was looking for votes, you’re absolutely right, but you can also look at it as if he was representing constituents, maybe a slim few, but you have to try to represent the uber wealthy as well.  

        I don’t mean to imply people who make 500k or 85k are middle class, they’re not.  But to start saying you’re in this group and someone else is another group is automatically divisive.  

      • It WILL be worse...

        …a lot worse (sequester, debt ceiling)

        But I never figured BHO would stick to the $250K. I just figured it was a bargaining position and took that into account. But what choice do you have – all you can do cast your vote and hope for the best.

  • Military cuts

    have GOT to be the core of the spending plan.

    • All spending....

      …has to be at the core of the deficit reduction talks.  This spending on all programs is out of control by any measure.

      Military will only be one aspect…a 14 trillion dollar major problem needs a a meat cleaver to all spending programs to move this country forward.

      • mirage

        Here’s the federal budget for fiscal year 2010.

        federal spending FY2010

        Going clockwise, Social Security is the big blue wedge on the upper right. Then, Department of Defense spending is the big red wedge. Then the big green wedge is other mandatory (that is, non-discretionary spending), followed by the purple wedge, representing Medicare spending, then a turquoise wedge for Medicaid and the Children’s Health Insurance Program.

        EVERYTHING ELSE the federal government spends money on amounts to only a quarter of total federal spending. You just can’t cut your way out of this hole.

        • bit of a correction...

          …that big green wedge you mention is NOT just “other mandatory spending” as you say, but is primarily unemployment and welfare spending and does not even have the mandatory interest on debt that is represented by another catagory.  An incredible 50 million in a country out of 300 million on food stamps and unemployment benefits for years will be a BIG number on the chopping block.

          As for hope anything will ever get done, I don’t have real hope.  No elected official can even close down post offices in rural counties that bleed money…they just want to pretend the spigot is wide open and spend their time trying to justify Amtrak to central Iowa at a $160 subsidy per rider, or government sponsored school loans for 20 years with “no marketable skills” among other recent boondoggles.

          • you are correct

            that green wedge includes unemployment and food stamps but does not include interest payments on the national debt (the orange wedge around 9 o’clock on the circle).

            Cutting unemployment payments and food stamps are among the worst possible ideas at this time, not only for the families who depend on them but also for businesses. That is huge “bang for the buck” federal spending compared to almost everything else. Way more important than more engines and airplanes the Pentagon doesn’t even want.

    • no way

      will Congress allow those military spending cuts to happen. No way will Obama go to the mat for real defense spending cuts. Not a chance.

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