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Emerson Report 1.10.2013

What’s Over the Edge of the Fiscal Cliff

The fiscal cliff has passed, and it should be clear now that the driving force behind it was always taxes.  Ronald Reagan said that a person who agrees with you 80 percent of the time is not a 20 percent traitor, and it was the case in Congress that a majority voted for compromise, and a minority voted to go over the tax cliff.

In the first case, supporting the agreement meant permanent income, dividends and capital gains tax relief for Americans making less than $400,000 and $450,000 per year.  It fixed the Death Tax problem so that estates valued at five million dollars or less would be exempt from that onerous double taxation, raising the threshold to $15 million per couple over 10 years.  And the agreement also applied a permanent fix for the Alternative Minimum Tax, which will now be indexed for inflation as it always should have been.  I did not want to make a vote that allowed taxes to reset to pre-2001 rates for some Americans, but this deal preserved tax relief for 98 percent of us.

I’m guessing most folks who earn more than $450,000 per year in this country have already found it in their interest to hire a tax adviser.  The rest of Americans want, need, and deserve permanent protection against higher federal tax rates as well as the uncertainty that they could hit us in any given year.  After yet another eleventh-hour showdown in Congress, the argument for permanency should be clear.

If the agreement was bipartisan, so was the opposition to it.  In the second case, liberals and conservatives alike voted to allow income tax rates to expire for all working Americans.  The 10 percent income tax bracket for the first dollar of tax liability would have disappeared.  The Death Tax would have kicked in for estates valued at one million dollars at a rate of 55 percent, devastating family farms in Missouri.  And senior citizens living on the fixed income of dividends, interest and investments would have seen their taxes in many instances double.

It is nice to have the moral high ground in a political argument, but I have met few people in my life for whom everything must be “my way or the highway.”  More often than not, that inflexibility leads to “the highway” than to “my way.”  And there are consequences to insisting on everything you want, accepting nothing less, and ending up completely empty-handed.  With thousands of dollars in the earnings of southern Missouri families this year at stake – to be used for school supplies, work clothes, gas for the family car, and prescription drugs – getting nothing is irresponsible when there is a chance to keep their income tax rates unchanged.

Trust me, we cannot balance our budget on raising taxes, but I for one believe that President Obama and some liberals in Congress would be willing to try.  Going over the cliff was exactly what some of them wanted.  Reagan also famously said, “Republicans believe every day is the Fourth of July, and Democrats believe every day is April 15.”

From here, the debate will turn to more favorable ground for conservatives, and having come to terms on one issue ought to increase the pressure to come to terms on another.  We have a serious federal spending problem in this country.  In the next test it will be important, and appropriate, to take a hard line on a spending pattern that forces Americans to borrow 43 cents of every dollar we spend.

 

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