WASHINGTON — After the Thanksgiving break, Congress and the Louisiana delegation are expected to move quickly through December to avoid major tax increases and across-the-board spending cuts that have been dubbed the “fiscal cliff.”
While budget analysts prefer the more accurate term, “fiscal slope,” the reality is that $500 billion in tax hikes and across-the-board budget cuts in defense and non-discretionary spending are slated for 2013 and will slowly begin on Jan. 1 unless Congress acts.
This could equate to an average increase in taxes of $2,200 for the middle class, according to President Barack Obama, or up to $3,500 for the average American household, based on a recent Tax Policy Center analysis.
But the members of the Louisiana congressional delegation for the most part say they are confident some kind of deal can be worked out to avoid, or at least delay, any major tax hikes or defense cuts. The biggest issue is the political divide of whether to extend tax cuts for those 2 percent of households making more than $250,000 a year, which includes many small business owners.
“It’s obviously continuing to be a real problem and a real threat,” said U.S. Sen. David Vitter, R-La. “Given the election results, I think the solution is going to involve some kind of tax increase. I think that’s unfortunate.”
While Obama and many Democrats want to eliminate the Bush-era tax cuts for the wealthiest Americans only, Republicans are more willing to compromise by doing it through what Vitter says is the “least destructive” way. That means looking at eliminating tax deductions, or “loopholes,” that mostly benefit the wealthy while setting the table for more significant tax, spending and entitlement reforms next year.
U.S. Cedric Richmond, D-New Orleans, disagrees somewhat with that approach but he said he is “very optimistic” a deal will get done before or just a few days after the end of the year.
This is not a time, for instance, to warn people they should cut back on their holiday shopping, he said. “We don’t want to affect consumer confidence yet,” he said, although another recession is predicted if no deal is made.
Richmond wants to extend unemployment funding and end the Bush tax cuts for the wealthy, which Obama made a key part of his campaign.
“I think they (Republicans) lost the election and that was a big part of the election,” Richmond said. “There’s going to have to be some shared sacrifice to get our fiscal house in order.”
Richmond, however, would prefer increasing taxes on the wealthy only for a set period of time, such as four years. “Let’s send a clear message we’re not trying to dig in your pockets forever,” he said.
The tax breaks and deductions set to expire or change without congressional action include all the Bush-era rate reductions; the temporary payroll tax cuts Obama pushed for two years ago; the child-care tax credit would be cut in half; the expansions of the earned income tax credit and the dependent-care credit would go; about 20 percent of taxpayers would then have to pay the alternative minimum tax; and more.
U.S. Rep. John Fleming, R-Minden, blames Obama, Republicans and Democrats for the problems that date to last year’s brinksmanship battle to increase the debt ceiling. Fleming and other farther-right Republicans held the line on what they dubbed a bad compromise and forced a near government shutdown. Now, Obama and Congress must deal with the across-the-board budget cuts, called sequestration, which they have been unable to resolve in more than a year since the vote.
“Both Congress and the president have failed to deal with the issues and they’ve just stacked up over time,” Fleming said.
Fleming said he expects the current budget, including all current tax cuts, to be extended at least through March or so. Fleming said he does not expect Republicans will truly come to the table until Democrats agree to talk about true “entitlement reforms,” such as cutting back expanded spending on programs like food stamps.
One area where Fleming is optimistic though is that any defense spending cuts will not heavily impact Louisiana’s military bases, such as Barksdale Air Force Base and the Fort Polk Army post. Federal funding already has been allocated for a Fort Polk expansion.
Another area of the automatic cuts affects federal payments to Medicare providers, said U.S. Rep. Bill Cassidy, R-Baton Rouge, who is a physician.
“You can’t just cut providers and not hurt access,” Cassidy said. “You’ll have longer waits (to see doctors).”
One place where fiscal cliff strategies differ is in the congressional campaign between U.S. Reps. Charles Boustany, R-Lafayette, and Jeff Landry, R-New Iberia. They were forced to run against each other because of congressional redistricting. They are now in a runoff slated for Dec. 8.
Landry wanted to skip the “lame-duck” congressional session in November and December, saying only bad compromises would be made. Boustany criticized that position saying delay is dangerous for the economy and people’s paychecks.
But Landry was banking on Obama losing reelection and then fixing the crisis early next year with Republicans in control. Since that scenario failed, Landry now says, “We just as soon as continue our work.” But does that mean he is any more optimistic about a good compromise?
“We haven’t been able to broker anything other than $2.1 trillion in debt and sequestration,” Landry said. “People like Mr. Boustany will compromise, not a problem. But that compromise I can tell you is not going to be good for America.”
The push is to increase taxes on the wealthy, Landry said, but no Democrats have agreed to use that extra revenue to exclusively freeze spending and put it all toward debt reduction.
While Boustany also opposes the tax hikes as a “deal breaker,” he said everything must be done to work out a deal in order to avoid a “serious recession” and tax increases for everyone.
If the “cliff” is crossed, Boustany said, “It could be several months before anything could get done. There’ll be the inauguration and a new Congress. Keep in mind we’ll be coming upon (tax) filing season and it’ll be chaotic for the IRS.”