As Wall St. shifts their attention from Capitol Hill to corporate America with the dawning of earning season this week, politicians in Washington D.C. are busy preparing for another fiscal showdown over spending cuts before the $16.4 trillion debt ceiling has to be raised again at the end of February to avoid a sovereign default.
Now that 2013 is underway working Americans are faced with paying higher taxes from reduced earnings as a result of the 2% payroll tax hike while the wealthiest Americans earning over $ 400,000 are left paying a higher tax rate from 35 percent to 39.6 percent due to the latest fiscal compromise reached at the end of 2012.
Budget Control Act
In 2011 the Budget Control Act brought some final closure to the 2011 United States debt-ceiling debacle, which divided the White House and House Republicans in August 2011 and threatened to drive the United States straight into sovereign default just ahead of the Standard and Poor’s credit agency slapping the U.S. with a lowered credit rating from AAA.
Before the debt ceiling was raised from $14.3 trillion to $16.4 trillion after political wrangling and a stock market sell-off, House majority Republicans managed to get Democrats to accept large federal spending cuts to help reduce the defict and put the United States on a more sustainable fiscal path.
Some $ 1.5 trillion in federal spending cuts over 10 years was finally agreed to with three-fifths of the cuts coming from reductions in domestic and international programs and the other two-fifths coming from cutting and capping funding for defense, according to Richard Kogan from The Center on Budget and Policy Priorities.
The Budget Control Act also mandated across the board budget cuts, named sequestration, after the Joint Select Committee on Deficit Reduction (AKA: “Supercommittee,”) failed to reach an agreement.
The sequestered cuts are projected to total $1.2 trillion (approximately $110 billion per year), and will begin on March 1st 2013 and run through the end of 2021.
The areas of federal budget that will face the looming sequester cuts have not been determined yet but they are intended to be “across the board” cuts, divided between defense cuts (E.G. Pentagon) and entitlements cuts (E.G. Medicare).
After agreeing to the last minute “fiscal cliff” deal in late 2012 that led to raising tax revenues of $620 billion through raising tax rates on the wealthiest Americans earning over $400,000 while agreeing to no new federal spending cuts in areas such as entitlement programs, Republicans on Capitol Hill are now attempting to send out the message to the White House that they want even more reductions in federal spending.
Speaking yesterday on ABC’s This Week With George Stephanopoulos, Senate Minority Leader Mitch McConnell (R-Kentucky) made it clear that the real fiscal problem in Washington D.C. relates to over-spending.
“Oh yeah, the tax use is finished, over, completed. That’s behind us” he said.
“Now the question is, what are we going to do about the biggest problem confronting our country and our future? And that’s our spending addiction, McConnell continued.
“It’s time to confront it” he said.
When host George Stephanopoulos confronted Senator McConnell about the fact that $1.5 trillion in federal spending was already cut in 2011 under the Budget Control Act and that is far more than the $620 billion in newly approved tax revenues from the “fiscal cliff” compromise, McConnell said, ” We didn’t have this problem because weren’t taxing enough.”
“The President got a trillion dollars less in revenue than he wanted. That means that money stays in the pockets of the American people” he said.
As Republicans such as Senator McConnell (R-Kentucky) attempt to make the case that even more spending cuts are needed instead of raising more tax revenues, Democrats can make the case that in addition to accepting $1.5 trillion in spending cuts along with $1.2 trillion in looming March 1st sequester cuts, Democrats have previously agreed to reduce $700 billion in spending through Medicare Advantage, passed earlier under the Affordable Care Act, known as “Obama care” in 2010.
President Obama made it clear in his post-fiscal cliff news conference that he is aware that Medicare represents the biggest contributor to the deficit and that more health care reform is needed.
But he emphasized that cutting is not the way to growth.
“We can’t simply cut our way to prosperity” he said.
Obama later pointed out, “The deficit needs to be reduced in a way that is balanced.”
Obama said that cutting spending goes “hand in hand with further reforms for the tax code” and “we can’t keep cutting things like basic research and new technology and expect to succeed in the 21st century.”