Congress Up to Its Neck in Challenges

By Steve Kopperud, Policy Directions, Inc.

The holiday foofarah over negotiations among the two chambers of Congress and the White House on how to avoid the “fiscal cliff” was far more light than heat. What was achieved was a series of rather minor adjustments to the tax code and a highly unpopular extension of the 2008 farm bill just to keep the United States Department of Agriculture (USDA) running and milk prices low for the time being. Given the media hysteria and the hyped-up political rhetoric, one would have thought that as a nation we’d abandoned all hope. Not so much; ultimately, negotiators slapped a political bandage on the whole mess, or to use the newest Washington jargon: They kicked it down the road.

Now comes the heavy lifting.

The American Taxpayer Relief Act – a misnomer if there ever was one – is now the law of the land. The two percent reduction in payroll taxes is no more; the personal tax rate for those making over $400,000 per person, $450,000 per couple is now 39.6 percent, along with a new 20 percent capital gains and dividend tax on those higher wage earners. The estate tax is now 40 percent, but doesn’t kick in unless your estate is worth over $5 million. Once again the federal bioenergy blender’s tax credit for biodiesel/renewable diesel is extended, retroactive to January 1, 2012, along with several minor biofuels tax “gimmes.” USDA’s authority over farm programs is restored for nine months, but all of the “must-spend” language is gone from most programs so the spending/savings monkey is on the back of USDA Secretary Tom Vilsack. The Market Access Program (MAP) and Foreign Market Development (FMD) money is restored, and consumer milk prices will not double overnight as the media warned. Nothing was done to ease the corporate tax rate.

The reality is most of this will change by the end of 2013. There’s nothing permanent about anything in federal law; laws are amended, they’re repealed, courts overturn them, or they’re replaced by new laws. What Congress and the White House did was slap together a very temporary, very sloppy politically motivated fix to get themselves off the year-end hook, thus avoiding all of the dire predictions of economic disaster had we hurled ourselves off the fiscal cliff. All of the political speculation over whether President Barack Obama or House Speaker John Boehner won is pointless; what we – and they – suffered through during the last several weeks of 2012 was just the first skirmish in what promises to be a very long war.

The next battle will be the debt ceiling, spiced up by congressional efforts to cut spending by over $1 trillion in the next 10 years. Under US law, the government can’t spend more money than it takes in or can borrow. Back during World War I, Congress limited how much Congress could borrow in any given fiscal year, and given the government consistently spends more than it takes in, that ceiling has been increased dozens of times over the last 100 years. Folks heard a lot about the debt ceiling in 2011 during the political tug-of-war over deficit reduction. Again, at the eleventh hour, Congress and the White House came to an agreement embodied in the Budget Control Act of 2011 – another misnomer – and despite raising the debt ceiling to $2.4 trillion in exchange for “future” spending cuts, Standard and Poor’s downgraded the credit worthiness of federal bonds for the first time in this country’s history. The US Treasury hit its borrowing limit on December 31, 2012; the government is operating on a 60-day window with stop-gap measures.

The issue is the government’s ability to pay or incur greater debt. Congress and the Obama administration are confronted with either increasing the debt limit of the US Treasury or cutting spending. This administration is loath to cut spending so, of course, the White House wants the debt ceiling raised. In a January 7, 2013, Wall Street Journal interview with Boehner, the Speaker explains Obama doesn’t believe there’s a government spending problem, but rather a “healthcare problem,” meaning fixes to the federal healthcare system will save money and solve the federal deficit issue over time. However, despite Obama’s rosy assertion, fiscal conservatives from both sides of Capitol Hill and both sides of the aisle want to see commitments on spending cuts – including reinvention of Medicare, Medicaid, and Social Security – before the debt ceiling is even discussed. Hence, mandatory spending cuts contained in the Budget Control Act of 2011 were extended for only two months in hopes that $1.2 trillion in cuts over 10 years can be found and enacted. This would, it is hoped, make the debt ceiling debate moot. Every congressional committee is now charged with finding cuts and spending adjustments within their areas of jurisdiction to make this all happen.

The next battle will be tax reform – given “success” on the debt ceiling/spending fights – and both the House Ways and Means Committee under the leadership of Representative Dave Camp (R-MI) and the Senate Finance Committee steered by fiscal moderate Senator Max Baucus (D-MT) have quietly been working to come up with their portion of the spending/deficit reduction “grand bargain.” Both Camp and Baucus want a soup-to-nuts overhaul of the federal tax system, not only reinventing both personal and corporate tax rates, but an elimination of special interest loop holes, credits, and other benefits.

The secondary front in this war will be a comprehensive rewrite of existing USDA program authority, i.e., a 2013 farm bill. The extension of department authority runs only through the end of September, and both House and Senate Agriculture Committee chairs have already begun the process of setting up last year’s Senate-approved ag bill and the House ag panel’s passed bill for committee action in this, the 113th Congress.

It’s hoped the ugliest of the farm bill battles can be avoided since both panels are now painfully aware of the economic and political shortcomings of their respective legislation.

At the eleventh hour during the fiscal cliff negotiations, House Agriculture Committee Chairman Frank Lucas (R-OK) and Senate Agriculture Committee Chairman Debbie Stabenow (D-MI) produced an extension bill that was submitted to congressional fiscal cliff negotiators for inclusion in the final cliff deal. Unfortunately, the bill was so loaded with new programs it would have inspired several Senate procedural challenges, so the extension language was rejected. It also didn’t help much that Boehner waded into the fray, rejecting the package outright as impassable in the House.

Not counting gun control, immigration reform, energy, and a host of other priority issues, Congress is going to be up to its neck in challenges: debt ceiling, $1.2 trillion in spending cuts, comprehensive federal tax reform, and a 2013 farm bill. It’s going to be a busy, busy year.

February 2013 RENDER | back