Fiscal Cliff: Who Won? Who Lost?

by John Goodman, NCPA

Here is the bill. Here is the CBO score. Here is the House Republican summary of the bill.

Republicans seem to have great difficulty reminding people that the George W. Bush tax cuts are the reason why middle income families have not been paying about $2,000 more in taxes every year. The agreement President Obama just made with Congress saves about 80% of those tax cuts. It saves them for everybody earning less than $400,000 and in some cases makes them permanent. As of January 1, those tax cuts were swept off the table. So in voting to restore them for 98% of the population, Congress did not vote for a tax increase on the rich. It voted for a huge tax reduction for everyone else.

Anti-tax activist Grover Norquist is right about how to frame the issue: This was not a victory for the president or for the Democrats in Congress. Remember, almost all of them opposed the Bush tax cuts; they campaigned against them in every election; and they blamed them for the huge deficits we have been incurring.

It would be an incredible PR coup for the Democrats if they now appear to be the champions of the very tax cuts they opposed all these many years. If there is one thing about the Republican brand that was never in doubt it was that the GOP is the party of low taxes — for everybody. They have jeopardized that brand in the debris left over from the fall off the cliff.

A second Republican failure is the inability to explain why real billionaires, like Warren Buffett, are going to be affected very little by the new higher rates (unrealized capital gains will still be taxed at a rate of zero), while entrepreneurs with pass-through income are going to get hosed. A third Republican failure is the lack of response to the president’s claim that he only wants to restore Clinton era tax rates for investors and business owners. Not true. The new rate on small business (pass through) profits will be 43.4%, not the Clinton era 39.6%. That extra 3.8% is courtesy of ObamaCare.

Which brings us to the greatest Republican failing: allowing the entire Fiscal Cliff discussion to take place without ever mentioning the new taxes we all will be paying because of health reform. Overall, ObamaCare introduces 20 new taxes or tax rates, amounting to about $1 trillion over the next 10 years. Five of the new taxes, amounting to more than a quarter of a trillion dollars, started on January 1, 2013!

Yet in The New York Times summary of what the Fiscal Cliff was all about, these tax increases were not even included. Think about that for a moment. Not only did President Obama get away with claiming that he was opposed to any new taxes on the middle class, no one in the mainstream news media and no one in the Republican Party ever took him to task for championing all manner of new taxes for middle-income families in his signature piece of legislation!

The new ObamaCare taxes that begin this month, by the way, include higher taxes for anyone who is sick and has medical bills exceeding 7.5% of income. They include higher taxes for families with special needs children who had previously been spending more than $2,500 a year from a Flexible Spending Account. And they will be reflected in higher medical bills for anyone who needs a hip or knee replacement, a pacemaker or any other medical device.

The new ObamaCare taxes are not just taxes on the middle class, they are also taxes on the sick. But you would never learn that listening to the Republicans.

My colleagues and I at the National Center for Policy Analysis have a reasonable proposal: push back the start date of the five new ObamaCare taxes and pay for that by pushing back the start date of ObamaCare.

This proposal is revenue neutral and it accomplishes two admirable objectives: (1) it delays tax increases at a time when the economy needs all the help in can get in reaching a speedy recovery and (2) it delays the mandated health insurance requirement at a time when it is patently clear that most of the states are nowhere near being ready to start enrollment on time (this October).

Sadly, the Republicans didn’t even bring this idea up in the negotiations. It is still not too late to try it out.