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The Fiscal Cliff

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My Vote to Permanently Extend Tax Cuts

Below is my statement for the Congressional Record that explains why I voted for the American Taxpayer Relief Act.  This was not an easy vote to make, and it was a decision made after carefully weighing the concerns many of you have voiced in phone calls, letters, and emails. You can also find a summary of the legislation below my statement.

"Mr. Speaker,

It was the issue of taxes that led to me running for Congress in the first place.  The question of how much of your money the government forces from us is central to the relationship of the individual with government and to the freedom of the individual.  And in the past several years through calls, emails, and personal meetings, I have heard from many of my constituents about the necessity of having stability in the tax code.

Making the current tax rates permanent for the vast majority of Americans, as this bill does, is a major accomplishment.  No longer will the threat of major tax increases because of an expiring law hang over the heads of taxpayers.   Providing tax certainty for individuals and businesses has long been needed and will allow them to plan and make decisions.  Hopefully, it will help the economy grow.  And finally having an answer on the death tax, although I prefer to abolish it entirely, is also critical for every farmer, rancher, and small business person in the country.

The clearest reason to vote against this bill is because of what it does not do – limit spending.  Too much spending, along with low economic growth, is the reason that our debt is mounting and that our children’s future is in peril.  This bill is a missed opportunity to take meaningful action to deal with that problem, and I supported efforts to have significant spending cuts included in this measure.  But it is not our last opportunity.

It is always possible to justify voting against a bill for what is not included in it. One must go further and ask, 'What happens if this bill is defeated?  Will the result be better or worse for the country?' We also have to make a judgment on what is possible with the current cast of characters that the American people have elected to office.  It does no good to imagine some ideal measure that could never pass the Democratically-controlled Senate or that President Barack Obama would never sign into law.  I am a conservative, and I am also a realist.

The answers to those questions lead me to conclude that it is better to approve this bill at this time, understanding that we must use the next few weeks of discussion about the debt limit to find a way to significantly reduce spending and begin to get our economic house in order.  House Republicans do not have to accomplish everything in one bill, but time is running out for us to get spending under control.  In coming weeks, we will need to consider every tool at our disposal to convince the White House and the Senate on the imperative of cutting spending.

Of course, there are provisions in this bill with which I disagree.  For example, extending some of the tax credits from the stimulus bill and continuing to pay unemployment for an additional year discourage work and encourage further dependency on government.  But they total about $100 billion out of a $4 trillion bill; the rest of the “cost” is due to extending tax provisions that have been in place for more than a decade.

Stepping back and looking at the whole picture, it seems clear to me that preventing a tax increase for most Americans and making all tax rates permanent is an important step for families all across the country and for the economy as a whole. 

Other provisions contained in this bill are important to the people in my district.  One would extend the current farm bill for the remainder of the fiscal year, allowing farmers and their bankers to make decisions on planting.  That provision also prevents the price of milk from doubling this week. Another section prevents the 27% cut in Medicare reimbursement to doctors, which would have made it very difficult for Medicare patients to find a physician to treat them.

Approving this measure is just a step.  Next, we must do whatever is required to control spending, especially spending in mandatory programs that constitute nearly two-thirds of the budget.  I continue to support comprehensive tax reform, which can ease the pain to taxpayers, help us be more competitive in the world, and give our economy a real boost.  We do not have to do all of these things in one bill – and it would be a mistake to try – but we must do them for the sake of our country and our future."

Highlights of H.R. 8, the American Taxpayer Relief Act of 2012

 

Tax Relief

Tax Brackets – permanently extends the 10% tax bracket and the 25%, 28%, and 33% tax bracket on income at or below $400,000 for individual filers and $450,000 for those married filing jointly

Capital Gains & Dividends – makes permanent the 15% top capital gains and dividends rate up to $400k (singles), $450k (married); 20% rate for both above threshold.

Death Tax – permanently extends current policy on portability and unification with a $5M exemption indexed for inflation and a 40% top rate

Alternative Minimum Tax (AMT) – permanently indexes AMT for inflation

PEP and Pease – permanent relief from the Personal Exemption Phase-out (“PEP”) and the itemized deduction limitation (known as Pease) for incomes under $250,000 (single), $300,000 (married)

Tax Extenders – extends several current business and energy tax policy provisions 


Congressional Pay Raise

Statutorily prevents any automatic pay raise for Members of Congress for 2013


Medicare and Other Health Provisions

Doc Fix – prevents the scheduled 26.5% cut to Medicare physician payments through December 31, 2013

Therapy Cap – extends the exceptions process for the Medicare therapy cap through December 31, 2013

Rural Health – extends current policy for rural health including the ambulance add-on payments, the payment adjustment for low-volume hospitals, and the Medicare-Dependent hospital (MDH) program.


Agriculture

Farm Bill – extends the current 2008 Farm Bill for 1 year at no additional cost to the taxpayer and reinstates the disaster programs for livestock, commodity, and specialty crop producers (except the SURE program) for 2012 and 2013

Sequester

Sequestration is turned off for two months and paid for with a reduction in discretionary spending cap for 2013 and 2014, and expanding eligibility for Roth conversion.  The additional $1.2 trillion in spending cuts through sequestration will continue.


Unemployment Insurance (UI)

Includes a 1 year extension of current extended weeks for UI

What was the Fiscal Cliff?

The so-called “fiscal cliff" refers to a combination of tax increases and automatic, across-the-board spending cuts set to begin under current law in January 2013.  Below is a more detailed look at exactly what changes at the beginning of the year.

Taxes

According to the Tax Policy Center, if the current tax provisions are allowed to expire, about 90 percent of all Americans will see their taxes raised.  This increase would be the largest tax hike in American history. 

Expiring Taxes and Policies by the Numbers

The following provisions are just the highlights.  In fact, dozens of tax provisions affecting individuals and businesses expire at the end of the year.  You can read the Congressional Research Service report An Overview of Tax Provisions Expiring in 2012 by clicking here. You can find more detailed information on each tax provision by clicking the hyperlink at the beginning the bullet point.

Bush-era tax cuts:


  • Marriage Penalty Relief – Will expire, which means married couples who are low- or middle- income earners will pay more in taxes than if they were to file separately
  • Child Tax Credit – This tax credit will decrease from $1,000 per child to $500

      Other tax increases:

      • The Estate Tax – The top tax rate will jump from 35 percent to 55 percent and the exemption level will fall from $5 million to $1 million costing taxpayers $40 billion
      • 2 Percent Social Security Payroll Tax Holiday – Originally passed as a temporary payroll tax holiday and then extended through 2012.  If Congress takes no action, the rate will be raised back to the normal rate of 6.2 percent from the current rate of 4.2 percent
      • Alternative Minimum Tax - Originally created to ensure that wealthy tax payers pay a certain share of their income, but without an adjustment for inflation from Congress it could affect 26 million extra taxpayers costing $40 billion
      • State Sales Tax Deduction - Under current law, taxpayers can deduct state income taxes from federal income.  However, the temporary deduction for sales taxes in lieu of income taxes expired December 31, 2011.  For a state like Texas that does not have an income tax, if nothing is done, Texas residents will no longer be able to deduct their state sales tax

      New Taxes:

      • ObamaCare – A number of taxes to support the implementation of the 2010 Affordable Health Care Act take effect in January 2013

        Other policies expiring:

        • Medicare Reimbursements to Physicians - On February 17, 2012, the House and Senate passed legislation that will prevent cuts to physician reimbursements through the end of this year.  Unless Congress acts to override the cuts, physician reimbursements would be reduced by 27 percent in 2013, which would dissuade doctors from accepting Medicare patients
        • Farm Bill - The 2008 Farm Bill generally expired on September 30, 2012.  Dairy policy expires on December 31, 2012, and other commodity support expires with the 2012 crop year.  Without an extension or a new Farm Bill, farm policy will begin to revert back to permanent law from the 1930's and 1940's that is seen as undesirable and has been suspended by modern Farm Bills  
        • Production Tax Credit (PTC) - Without an extension, wind projects placed in service on or after January 1, 2013, will not be eligible to receive the PTC 
        • Unemployment Insurance - The emergency unemployment compensation program is currently set to expire towards the end of this year along with the 100 percent federal financing of the Extended Benefits program

          Automatic Spending Cuts

          The automatic spending cuts or sequestration are mandated in the Budget Control Act to reduce the deficit by $1.2 trillion over 10 years.  The cuts come from both domestic and defense spending, but many programs are exempt.  Although defense spending makes up only 19 percent of the federal budget, it will account for 50 percent of the deficit reductions in the sequestration.  There is widespread and bipartisan agreement that these cuts would have a severe impact on America’s national security and further harm the economy.  These across-the-board cuts to defense would come on top of the nearly half-trillion dollars ($487 billion) in cuts already being implemented.

          Spending cuts by the numbers

          • Defense – There will be approximately a 10 percent cut to each program, project, and activity in the defense budget, which will total $55 billion in 2013. An additional 100,000 troops will be cut from the Army and Marine Corps resulting in the smallest ground force since 1940.  Our Naval fleet will shrink to its smallest size since 1915, and the Air Force will be reduced to its smallest tactical fighter force in its history
            • Exemptions to the defense budget - Military personnel accounts including pay and healthcare will be excluded from sequestration 
          • Nondefense – The cuts will result in an estimated 8 percent cut to every program, project, and activity in domestic programs that are not exempt, which will include education, job training, medical research, food safety, national parks, border security, and air travel
            • Exemption to nondefense cuts - Include much of Medicare, Social Security, Medicaid, and Food Stamps

          Reports on the Fiscal Cliff

          Reports on Automatic Spending Cuts

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