Between partisan bickering and political posturing, it is doubtful Democrats and Republicans will reach a quick agreement to head off the “fiscal cliff” year-end tax increases and spending cuts that could hit millions of middle class taxpayers.
Yet some U.S. representatives and senators from Indiana in the 112th Congress say an agreement will be reached by year’s end.
White House officials estimate the average American family will pay $2,200 more in taxes next year if an agreement is not reached sometime in the next 29 days.
The fiscal cliff is the result of the debt ceiling Budget Control Act of 2011, which imposed caps on discretionary programs to reduce their funding by $1 trillion over 10 years. That act also established a Joint Select Committee, called the Super Committee, that was to further reduce deficits by $1.2 trillion from 2012 to 2021. Because the committee failed to achieve its goal, automatic across-the-board cuts are scheduled to start Jan. 1.
The nonpartisan Tax Policy Center, based in Washington, D.C., estimates the fiscal cliff threatens to boost taxes by more than $500 billion in 2013, when many temporary tax provisions are scheduled to expire. Nearly 90 percent of Americans would pay more tax, primarily because the temporary cut in Social Security taxes and many of the 2001/2003 tax cuts would expire, according to the Tax Policy Center.
Low-income households would pay more due to expiration of tax credits in the 2009 stimulus. High-income households would be hit hard by higher tax rates on ordinary income, capital gains and dividends, and by the new Medicare payroll tax related to health reform, according to the Tax Policy Center.
The White House and Congress are at odds on how to reach a compromise plan, one that reduces future deficits by as much as $4 trillion over 10 years, cancels the tax increases and automatic spending cuts, and expands the government’s ability to borrow beyond the current limit of $16.4 trillion.
On Friday, President Obama took his stance — allow tax increases on the wealthy while extending current Bush-era tax rates for households earning $250,000 or less — to the people, staging a campaign-style rally in Pennsylvania.
His trip comes a day after Treasury Secretary Timothy Geithner met privately with congressional leaders and presented a proposal calling for $1.6 trillion in higher taxes over 10 years and immediate spending to help the unemployed and struggling homeowners. The proposal, which Democratic officials described as the negotiation’s opening bid, includes plans for legislation in 2013 aimed at saving $400 billion over 10 years from Medicare and other benefit programs.
Republicans want the president to agree to cuts in Medicare, Medicaid and Social Security, a move Congressional Democrats oppose.
Effect of no-tax increase pledge
A no-tax increase pledge — put forth by the Americans for Tax Reform (ATR) and signed by many in Indiana’s Republican delegation — is aggravating attempts at compromise.
Andy Downs, director of the Downs Center for Indiana Politics at Indiana University-Purdue University Fort Wayne, said pledge-signers could face primary challenges from Tea Party candidates in their next election if they vote for tax increases.
“The question becomes is it feasible for a more conservative candidate to show up in one of those primaries, one who has the resources to effectively run against the incumbents,” Downs said.
Downs said if several candidates appear on the ballot, the ultraconservative base is reduced. He pointed to the election of Sen. Dan Coats, who had several opponents in the Republican primary.
“If there had only been one of them, maybe Coats would not have got the [Republican] nomination. I doubt that, but that is an example,” Downs said.
Any challenger also must have a funding base. For example, Republican U.S. Rep. Todd Rokita “at the end of the year will be sitting on a half million dollars or more. That is a lot of money for a primary challenge,” Downs said. U.S. Rep. Larry Bucshon, R-Newburgh, will have “about $100,000 at the end of the year. Not as much, but still a good start,” Downs said.
Incumbents, Downs said, will likely not be caught off guard and would start campaigning early if challenged, citing an example of Indiana Sen. Richard Lugar, who lost in the primary to Tea Party-backed candidate Richard Mourdock.
Mourdock lost the general election to Democrat U.S. Rep. Joe Donnelly.
Bucshon, Rokita and Coats all signed the pledge championed by anti-tax crusader Grover Norquist, founder and president of the ATR. However, two Indiana Republicans are among 16 GOP members in the 113th U.S. Congress listed as “non-signers” of the pledge by the ATR — 2nd District U.S. Rep. Jackie Walorski, and 5th District U.S. Rep. Susan Brooks.
Bucshon, who represents Terre Haute, Vincennes and Evansville in District 8, said in a statement to the Tribune-Star that he “pledged to my constituents that I would not raise their tax rates. Hardworking Hoosiers and small businesses should not be asked to send more money to Washington, D.C., just to pay for bigger government and increases in spending.
“I have stated before that we need comprehensive tax reform and that we should focus on the long-term drivers of our debt during fiscal cliff negotiations,” Bucshon said. He added that he is “optimistic that we can put politics aside, stop campaigning, and come together for the good of the American people.”
Outgoing Sen. Lugar has long been a target of the ATR for not signing its tax pledge. Lugar is one of only seven Republican senators who never signed the pledge.
“He has been the advocate for comprehensive pro-growth tax reform that is far bigger than the tactic of a pledge on rates,” said Andy Fisher, communications director for Lugar.
“Sen. Lugar has said that he wants to be helpful to the leadership in reaching a deal because the economic ramifications for working families — and their savings and investments — of going over the fiscal cliff would be devastating. Sen. Lugar would encourage a plan that would best stimulate economic growth, but he is not drawing red lines about what should be in or out of a package,” Fisher said.
“Sen. Lugar believes that a deal can be reached and there are several thoughtful ways that have been suggested and should be considered and advanced rather than obstinacy on both sides that would lead to failure,” Fisher said.
Rokita, who represents Greencastle as well as areas such as Lafayette, Lebanon and Frankfort in District 4, said in a statement to the Tribune-Star: “As I have said many times, I support fundamental tax reform that lowers rates and eliminates special interest loopholes used by only a small fraction of Americans. At the same time, we must reduce spending and reform the drivers of our debt. Any compromise that fails to address our spending problem will ultimately fail, leaving us with a sick economy and ever more debt,” Rokita said.
“I signed the pledge as a reflection of the principles I’ve always stood for. I still believe and will continue to tell anyone who will listen that the problem in Washington is not that taxes are too low, it’s that we spend too much, and we’ll never solve it by confiscating the property of American taxpayers,” Rokita said.
Donnelly, a senator-elect, will vote on the fiscal cliff issue as a representative of Indiana’s District 2, which covers northern Indiana and includes South Bend and Elkhart. Donnelly has not signed the ATR pledge.
“Joe supports bipartisan efforts to find a way to protect our fragile economic recovery and give middle class families and businesses the certainty they deserve,” said Elizabeth Shappell, spokeswoman for Donnelly. Shappell said Donnelly “supports finding common sense ways to cut wasteful spending. Joe is optimistic that both sides can come together to find a solution that gets our fiscal house in order,” she said.
Sen. Coats, in a statement to the Tribune-Star, said he favors closing tax loopholes over raising taxes on high income earners.
“When taking office, I pledged to the people of Indiana that I would do everything I can to keep this country from fiscal collapse. Right now, we are at the edge of the cliff. I do not believe Hoosiers should be asked to give more of their hard-earned dollars to Washington if Washington doesn’t make a commitment to change its spending habits,” Coats said.
“To avert the fiscal cliff, the president must work with Congress to create a balanced plan that would cut massive deficit spending, reform our tax system and restructure entitlement programs, which are the biggest drivers of our national debt. Some Republicans, including myself, have said that we would consider putting revenues on the table by closing tax loopholes, not by raising tax rates, in exchange for serious spending reforms. Raising tax rates on Americans, as the president has proposed, will discourage job creators from hiring and will not solve our fiscal crisis,” Coats said.
President Obama is asking approval by year’s end for $30 billion to renew expiring jobless benefits and $25 billion to prevent a looming Jan. 1 cut in fees for doctors who treat Medicare patients and an undisclosed amount to help homeowners hit by the collapse in real estate values.
“I was shocked and stunned to learn that the president’s proposal to address the fiscal cliff is yet another stimulus bill,” Coats said in a statement released Friday. “When both Republicans and Democrats all know that we must control spending, it is absurd that the administration would propose a $50 billion spending plan.
“The president’s proposal is a complete disconnect from the economic realities we face. Increasing spending and raising taxes on Americans is a non-starter and only adds to our fiscal crisis,” Coats said.
Reporter Howard Greninger can be reached at (812) 231-4204 or email@example.com.
The Associated Press contributed to this report.