On New Year's Day, at truly the 11th hour, Congress passed a measure acceptable to the president that will forestall the worst plunges associated with the "fiscal cliff." The measure pushes back until the end of February the battle over automatic spending cuts and leaves unresolved the issue of raising the debt ceiling. Individuals earning over $400,000 and couples earning over $450,000 will get a full taste of what Obama means by a fairer tax code as they now give the federal government a greater portion of their income, all in an effort to collect an additional $600 billion over the next 10 years. And for the rest of working Americans, an additional 2 percent of take-home pay will go to payroll taxes that were lowered temporarily two years ago.
But the deal also preserves and makes permanent the income tax rates the vast majority of Americans have come to expect over the past decade (along with expected deductions, exemptions and credits) while fixing the threatening downward creep of the Alternative Minimum Tax.
And, most thankfully, the deal is done. Once the hopes for some "grand bargain" over fundamental tax and entitlement reform were dashed, the realistic scope of a passable deal on taxes was really all that was left, and the bargainers hammered out something that left all sides wanting.
But the fact that the revenue issues are settled is no small accomplishment and, in fact, gives us some hope. Why? Because now the tax issues are off the table. None of the major players — all of whom must be exhausted if not embarrassed by this process — will have any appetite to take up tax issues anytime soon.
So now lawmakers must pivot to the issue of spending.
We were encouraged to hear President Obama turn directly to spending at the briefing he gave to reporters on Tuesday night. "The fact is the deficit is still too high," the president said. "I agree with Democrats and Republicans that the aging population and the rising cost of health care makes Medicare the biggest contributor to our deficit. I believe we've got to find ways to reform that program without hurting seniors who count on it to survive. And I believe there's further unnecessary spending in government that we can eliminate."
This week's tax measure falls far short of the kind of growth-oriented tax reform that could have been. But if the president is now satisfied that he has met his promise to raise tax rates for the wealthiest Americans, perhaps he can now address the single largest threat to the nation's finances: uncontrolled mandatory spending. A full pivot to the real issue of entitlements is long overdue.
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