We always knew that the fiscal cliff would be but one act in a bigger drama. The last-minute deal to resolve the fiscal cliff impasse prevented a devastating tax hike for many American taxpayers and provided some relief in the financial markets — but it left undone the bulk of the work necessary to put our fiscal house in order.
Though the deal fell far short, it could have been worse. The bill makes permanent many of the 2001 and 2003 tax provisions, holding down rates for the middle class. It protects farmers, ranchers and family businesses from an increase in the estate tax with a new top rate of 40 percent and a $5 million exemption. It provides relief from the Alternative Minimum Tax for nearly 30 million taxpayers, preventing an average tax hike of $3,000 per household.
However, our nation’s most successful small businesses, workers and investors will still see a sharp rise in their taxes. The Congressional Budget Office has warned that these tax hikes will mean slower growth, fewer jobs and less prosperity for all Americans. Some 77 percent of U.S. households will experience an immediate reduction in spendable take-home pay, due in large part to the expiration of the Social Security payroll tax holiday.
The deal also failed to include spending reductions. The CBO has determined the deal will add nearly $4 trillion to the deficit over the next 10 years. And the $620 billion in new revenue that the deal will generate in the next decade is smaller than any single year’s projected deficit — clearly demonstrating that raising taxes on high income-earners will not solve our deficit problem.
All of the major decisions on the debt ceiling, entitlement and benefit programs, government spending and a tax overhaul were postponed. New “cliffs” are already on the horizon. Another increase in the debt ceiling soon will be needed so that the nation can pay its bills. In just two months, the delayed sequestration budget cuts will be imposed unless Congress and the Obama administration find smarter alternative cuts.
Each of these challenges is likely to bring its own drama — more uncertainty and the threat of yet another government impasse. But we can’t lose sight of the overarching task of tackling our debt and deficits and restoring our long-term fiscal health.
The U.S. Chamber of Commerce is urging the new Congress and the administration to begin work now to slow spending through thoughtful entitlement reforms. They must tackle comprehensive tax reform and rapidly expand American energy, which would create jobs and drive revenues and growth.
The business community is ready to play a leading role as the fiscal drama unfolds this year.
— Tom Donohue is president and CEO of the U.S. Chamber of Commerce. The opinions expressed are his own.