In a move all too reminiscent of the passage of the ever unpopular ObamaCare, last night the Senate voted 89 to 8 to approve the so-called "American Taxpayer Relief Act" (H.R. 8, as amended). The deal was negotiated by Vice President Joseph Biden and Senate Republican Leader Mitch McConnell.
You can read the 157 page bill here. It is very unlikely that any Senator actually read the 157 page bill before they voted on it. It's like former Speaker Pelosi said of the Democrats' ObamaCare bill, "we have to pass the bill so that you can find out what is in it."
According to the Congressional Budget Office, the bill increases tax revenue by $620 billion while reducing spending by only $15 billion. That's right a 41:1 ratio of tax increases to spending cuts. When Presidents Ronald Reagan and George H.W. Bush increased taxes in return for spending the ratios were 3:1 and 2:1 respectively. We should remember that while those tax increases happened, the promised spending cuts did not.
That history makes me question the wisdom of Senate Republican Leader Mitch McConnell's effort to "prevent very real financial pain" by agreeing to tax increases in exchange for another spending cuts to be named later:
“As I said, this shouldn’t be the model for how to do things around here. But I think we can say we’ve done some good for the country. We’ve taken care of the revenue side of this debate. Now it’s time to get serious about reducing Washington’s out-of-control spending. That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for.”
The bill raises income tax rates for those taxpayers with incomes more than $400,000 for individuals and $450,000 for couples from 35 percent to 39.6 percent. These higher income taxpayers will also pay higher rates on investment income, with rates on dividends and capital gains rising from 15 percent to 20 percent. Add the 3.8 percent ObamaCare surcharge on investment income -- another tax that takes effect in January, and the top rate on investment income would rise to 23.8 percent for those high-income households.
The bill also raises taxes on couples earning more than $250,000 a year and single people earning more than $200,000 by limiting personal exemptions and itemized deductions.
Estates taxes will also be increased, with the top rate raised to 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates.
The bill also delays the automatic $1.2 trillion draconian sequester spending cuts for sixty days. The sequester cuts, evenly split between defense and certain domestic discretionary spending, were scheduled to go into effect on Jan. 1, 2013. The $24 billion cost of the sequester delay is allegedly made up with a mix of spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs.
Worse, the bill actually increases the deficit by including:
- A permanent fix for the alternative minimum tax.
- A five-year extension of tax credits for college tuition and the working poor, which were enacted as part of Obama’s failed 2009 stimulus.
- A one-year extension for unemployment benefits, affecting two million people.
- The long-term unemployed could count on receiving emergency benefits for another year, at a cost of about $30 billion.
The eight Senators who voted against this tax increase included five Republicans and three Democrats:
- Bennett D-CO
- Carper D-DE
- Grassley R-IA
- Harkin D-IA
- Lee R-UT
- Paul R-KY
- Rubio R-FL
- Shelby R-AL.
That leaves a lot of Senators who violated their pledge not to raise taxes.
Now the question is, will the House also approve the American Taxpayer Relief Act?