Despite a last-minute compromise, US remains nation of cliff dwellers

Something significant and quite extraordinary happened in Washington last Tuesday — the federal government worked! For a few brief hours, the president and the Congress declared an armistice in the nonstop war of attrition that has crippled Washington for the past 15 years and instead successfully grappled with legislative matters of great consequence for the nation.

The Congress has passed and the president has signed into law a bill that temporarily averts what otherwise would have produced fiscal and economic Armageddon.

It’s important to be clear on what’s been accomplished and what’s left undone. For the first time since 1990, the Congress has voted on a bipartisan basis to raise taxes. The legislation was passed by the Senate 89-8. Any senator could have brought the entire process to a halt with a filibuster. None did!

Speaker Boehner allowed the House to vote on the Senate- passed measure, and the House adopted it by a vote of 257-167. The deal came within a whisker of being torpedoed by the tea party Republicans. In the final House vote, only 85 of the 241 Republicans supported the bill. One can hope that this vote will mark the beginning of the end for the tea party wingnuts.

Here are the main provisions of the legislation: The Bush-era tax cuts of 2001 and 2003, which technically expired at midnight on New Year’s Eve, are reinstated and made permanent for most Americans. However, individuals with incomes above $400,000 and couples with incomes above $450,000 will face higher taxes. For them, the effective tax rate will rise from 35 percent to 39.6 percent. This will produce an additional $60 billion dollars annually — enough to run the government for about a week! In addition, those high-income individuals will see their capital gains tax rate increase from 15 percent to 20 percent.

The legislation also extends unemployment benefits another year for the long-term unemployed, it prevents a 27 percent cut in physician fees for doctors who treat Medicare patients, it removes the threat of a gigantic spike in milk and dairy prices that could have occurred because of the deadlock on the farm bill, and it includes numerous tax breaks for businesses and for renewable energy.

The new law also resolves two long-standing tax problems, the Alternative Minimum Tax and the Federal Estate Tax. The AMT was initially enacted in 1969 because there were 155 highincome households in America who paid no income tax. The AMT was designed to correct that inequity, but Congress never adjusted the AMT for inflation. Over the decades, it has affected more and more people, including the middle class. The new legislation permanently removes that threat to the middle class.

The legislation also ends uncertainty with respect to federal estate taxes. They will now be levied only on individuals whose estates are in excess of $5 million and couples whose estates exceed $10 million. In addition, those amounts will be annually adjusted for inflation.

Finally, the legislation delays for two months the “sequester” that would otherwise have begun to make what some believe are draconian reductions in both domestic and defense spending.

But for all that this legislation accomplishes, including the bipartisan manner in which it was enacted, the hard fact of the matter is that it barely qualifies as foreplay in terms of what is coming in the next couple of months.

In fact, although a precipitous fall off the fiscal cliff has been temporarily averted, America remains a nation of cliff dwellers. Nothing has yet been resolved on the much larger and much more contentious issues of debt, deficit and spending. And those issues can no longer be avoided.

Although most Americans don’t yet realize it, on New Year’s Eve the nation breached the national debt ceiling. The Secretary of the Treasury will use his authority to keep the United States from defaulting on our obligation to service our debt by moving money from one account to another for a couple of months. But by March, the debt ceiling limit will have to be raised or default will occur. If default occurs, the credit worthiness of the United States will be downgraded. That will produce national and international economic chaos. America would then resemble Greece, or worse, a banana republic.

In addition and at the same time, the two-month extension of the dreaded sequester will expire. What all of this means is that the time will be upon the president, the Congress and all of us to face the music, or to really send the nation over the fiscal cliff.

The only way out of this much more fundamental problem is to constrain the portions of the federal budget that are leading us to economic and fiscal catastrophe — the entitlements — Medicare, Medicaid and Social Security.

Fixing the runaway entitlements and rewriting and simplifying the income tax code for individuals and corporations is what we must do to save our economy and our way of life. It can only be accomplished successfully on a bipartisan basis.

The odds against success are long, and time is short. President Obama has yet to show the courage or the competence to lead such an effort. After all, it was Joe Biden, not Barack Obama, who brokered the compromise last week. The House Republican Caucus, dominated by uncompromising tea party zealots, is nothing but a destructive band of simpletons.

We’re gonna need a miracle!

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