Saturday, January 05, 2013 1:20 AM
Taxes rise in fiscal cliff compromise
Lawmakers avert 'fiscal cliff,' but hike in payroll taxes takes effect
By Corey Friedman | Times Online Editor
Your tax rate hasn’t changed, but your income’s still shrinking.
That political paradox applies to 99 percent of American taxpayers spared from steep tax hikes as Congress passed a compromise bill to avert the fiscal cliff this week.
Lawmakers didn’t extend a 2-percent cut in payroll taxes that expired Dec. 31, so the 4.2 percent tax will rise to 6.2 percent. That translates to about $64 less in monthly take-home pay for a worker earning the average American salary of $41,000.
"It was only intended to be a temporary reduction, but families are going to feel it,” U.S. Rep. G.K. Butterfield said. "They’re going to feel that 2 percent.”
President Barack Obama cut the payroll tax in 2010 "to get a little extra money in people’s pockets,” Butterfield said, but the debt-laden federal government needed to raise revenue.
Obama signed the fiscal cliff deal into law Wednesday after the compromise bill passed the Republican-run House and Democratic-controlled Senate. Butterfield, D-Wilson, voted for the bill, as did North Carolina Sens. Richard Burr, a Republican, and Kay Hagan, a Democrat.
The deal allows government to sidestep the one-two punch of higher tax rates for all earners and deep across-the-board spending cuts that were set to take effect Jan. 1. Experts predicted that the drastic cuts combined with tax hikes could plunge the nation back into recession.
Butterfield said the bill isn’t perfect, but he voted aye to preserve the Bush tax cuts for middle-class families. The Bush rates expired Dec. 31, but were reinstated when Obama signed the deal into law.
"I accepted this as a compromise,” Butterfield said. "Had we not done anything, all the tax rates would have increased.”
‘FAR FROM PERFECT’
Burr noted that the law sets permanent rates for the estate tax and alternative-minimum tax, extends unemployment insurance and adds an extra year before Medicaid doctor reimbursements can be cut.
"While the deal we voted on tonight was far from perfect and not as comprehensive as I had hoped, I supported this proposal because it protects 99 percent of Americans from increased taxes,” Burr said in a statement after the Senate approved the bill on Tuesday.
Hagan said she voted for the fiscal cliff deal to protect middle-class taxpayers from annual increases of about $2,200, which they would have had to pay had the Bush tax rates not been restored.
"While I believe it is unacceptable that Washington has once again waited until the eleventh hour to find a solution, and though I would have preferred a comprehensive, balanced solution to avert the fiscal cliff and begin reducing the deficit, I voted for the plan put forth tonight so that we can stop a tax hike on middle-class families in North Carolina,” Hagan said.
Rep. Walter B. Jones Jr., a Farmville Republican who represents North Carolina’s Third Congressional District, voted against the bill along with 150 other House Republicans.
"I’m tired of seeing Congress and the White House rob our children and grandchildren,” Jones said in a statement. "America is nearly broke financially because its political leadership keeps passing bills like this that simply kick the can down the road. Forty dollars in tax increases for every $1 in spending cuts? Adding $4 trillion to the debt? Are you kidding?”
Jones said the compromise was negotiated in closed-door deals outside the public eye.
"The way this deal went down reinforces what America hates about the way Washington is being run,” Jones said. "Backroom deals done in the middle of the night at the zero hour are never good for the American people. This will be no exception. We’re already hearing that millions in special corporate welfare subsidies were included for Hollywood, algae producers, electric motorcycles and many others.” Redistricting took Jones’ territory away from Wilson County. Newly elected Republican George Holding picked up a large portion of Wilson County and now will represent Wilson along with Butterfield.
‘TWO WAYS TO BALANCE’
Both Democrats and Republicans gave some ground. Obama initially wanted to raise taxes for everyone earning $250,000 or more.
The bargain raises $600 billion in new revenue through a tax-rate increase from 35 percent to 39.6 percent for workers earning more than $400,000 a year or couples who make more than $450,000.
Butterfield said that $600 billion is far less than what’s needed to chip away at the federal deficit, and lawmakers will have to make up the difference by slashing services.
What the fiscal cliff bill didn’t do is determine which federal departments and programs will be cut — and by how much — as lawmakers look to trim spending. The bill delayed sequestration, or percentage-based spending cuts set to take effect automatically, for about two months. With another debt-ceiling increase on the horizon, Butterfield fears Republicans will only vote to increase the nation’s debt limit if Democrats agree to steeper cuts.
"We’ve got to raise the debt limit, and it should be unconditional,” Butterfield said. "We owe these obligations. We need to pay our bills.”
ROLE OF GOVERNMENT
The Wilson congressman said his counterparts in the GOP want to starve federal programs that low-income Americans rely on. He believes reducing the deficit calls for a balanced equation.
"For years, Republicans have told us we needed to reduce the deficit, but we shouldn’t count on new revenue,” Butterfield said. "They suggested all along that the way to do that was to cut spending. Every expert in the country has said that in order to reduce the deficit, you’ve got to have a comprehensive approach.”
Butterfield said he anticipates that the clashes over spending and taxes will continue.
"I’m not strongly optimistic,” he said. "I was encouraged by some of the bipartisanship I saw at the eleventh hour on the debt deal, but Democrats and Republicans just have a different vision for America.”
While most politicians agree to spending cuts in principle, Butterfield said the practical effect of those decisions can be devastating.
"There is an element of the Republican conference who believe that we need to drastically reduce spending and reduce the social safety net that vulnerable families depend on,” he said.
The examples of unnecessary spending many small-government critics point out, such as foreign aid and administrative overhead, account for mere fractions of the total federal budget, Butterfield said.
"We spend $3.5 trillion every year as a government,” he said. "I’m not going to say there’s not any waste or abuse in the system, but 99 percent of it goes to wonderful programs that help the American people.”
Butterfield said this week’s fiscal cliff deal was a step in the right direction.
"I was very pleased to see this deal,” he said. "It was a pretty good bargain. It was a pretty good compromise under the circumstances.”
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