NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Tuesday, January 1st, 2013

U.S. House passes H.R. 8, reinstating tax cuts and extending aid for the unemployed

By a vote of two hun­dred and fifty sev­en to one hun­dred and six­ty-sev­en, the Unit­ed States House of Rep­re­sen­ta­tives has passed H.R. 8, mak­ing per­ma­nent the Bush tax cuts for those mak­ing less than $400,000 a year, extend­ing aid to the une­ployed, and delay­ing the auto­mat­ic reduc­tions to fed­er­al expen­di­tures that were set to go into effect at the begin­ning of the year.

The House act­ed in the final hours of New Year’s Day, after it ini­tial­ly appeared that Repub­li­cans were not going to bring the bill up for a vote. The Sen­ate over­whelm­ing­ly passed the leg­is­la­tion ear­ly his morn­ing (1:39 AM East­ern Time; 10:39 PM Pacif­ic on Decem­ber 31st, 2012) by a vote of eighty-nine to eight.

Democ­rats sup­plied most of the votes need­ed for final pas­sage. Just over a third of the Repub­li­can cau­cus vot­ed in favor of the bill, led by John Boehn­er of Ohio and Paul Ryan of Wis­con­sin. The rest of the Repub­li­can cau­cus, with the excep­tion of a few miss­ing mem­bers, vot­ed no, led by Eric Can­tor of Vir­ginia. (Can­tor’s no vote quick­ly ignit­ed spec­u­la­tion that he plans to chal­lenge Boehn­er for speak­er).

The roll call for the Pacif­ic North­west was as fol­lows:

Vot­ing Aye: Democ­rats Suzan Del­Bene, Rick Larsen, Norm Dicks (WA) + Susan Bomini­ci (OR); Repub­li­cans Jaime Her­erra Beut­ler, Dave Reichert, Doc Hast­ings, Cathy McMor­ris Rodgers (WA) + Mike Simp­son (ID), Greg Walden (OR), and Don Young (AK)

Vot­ing Nay: Democ­rats Jim McDer­mott and Adam Smith (WA) + Earl Blu­me­nauer, Pete DeFazio and Kurt Schrad­er (OR); Repub­li­cans Raúl R. Labrador (ID) and Den­ny Rehberg (MT)

Curi­ous­ly, the Wash­ing­ton, Ore­gon, and Ida­ho del­e­ga­tions were each split.

Suzan Del­Bene, who took Jay Inslee’s place in the U.S. House, vot­ed for H.R. 8. Her office released the fol­low­ing state­ment explain­ing the vote:

While not the per­fect deal, Con­gress was able to final­ly come togeth­er with a bipar­ti­san pro­pos­al that pre­vents the most dam­ag­ing con­se­quences of the fis­cal cliff [man­u­fac­tured fis­cal cri­sis] from hit­ting mil­lions of Amer­i­can fam­i­lies and small busi­ness­es.

Today’s deal saves over nine­ty-eight per­cent of Amer­i­cans from see­ing their income tax­es go up, extends tax cred­its for work­ing fam­i­lies and unem­ploy­ment ben­e­fits for mil­lions of peo­ple look­ing for work. It pro­vides greater eco­nom­ic cer­tain­ty for fam­i­lies and busi­ness­es and will help our econ­o­my grow. It also is a first step towards get­ting our over­all fis­cal house in order.

What’s today’s deal thank­ful­ly does not do is make harm­ful, dra­con­ian, across the board cuts which could have stalled our frag­ile eco­nom­ic recov­ery and hurt mil­lions of work­ing fam­i­lies, vet­er­ans and seniors who count on crit­i­cal ser­vices.

But there is still much work to do. I still firm­ly believe the only way we will build a foun­da­tion for long-term eco­nom­ic growth is by tak­ing a bal­anced approach to our bud­get that includes com­pre­hen­sive tax reform and reign­ing in our spend­ing to reduce our deficit.

So while we have pre­vent­ed the worst from hap­pen­ing, we must re-dou­ble our efforts in the 113th Con­gress to address our long-term bud­get issues and pass­ing poli­cies that help work­ing fam­i­lies, spur job growth and ensure eco­nom­ic oppor­tu­ni­ty for all.

Kurt Schrad­er of Ore­gon vot­ed against H.R. 8. His ratio­nale:

This is yet anoth­er short-term, Band-Aid solu­tion that has become preva­lent in Wash­ing­ton [D.C.] as of late.

It nei­ther tack­les the largest dri­vers of our deficits, nor lays a frame­work to say we will do so in the future. I remain staunch­ly com­mit­ted to pass­ing a big, bold deficit reduc­tion and jobs pack­age that puts every­thing on the table, includ­ing rev­enue, spend­ing cuts and enti­tle­ment reforms, puts our nation back on a fis­cal­ly sound tra­jec­to­ry and pro­motes growth and cer­tain­ty for our busi­ness­es.

Rick Larsen vot­ed for H.R. 8. Here’s what he had to say about his vote:

A few weeks ago I asked peo­ple in my Dis­trict what a $2,000 tax cut means to them. Patrick from Lan­g­ley told me $2,000 pays his annu­al elec­tric bill. Cathy from East­sound said she would use the mon­ey to help her daugh­ter pay for col­lege. Annette said she would spend the mon­ey to sup­port small busi­ness­es in Sedro-Wool­ley.

The peo­ple I rep­re­sent spoke, and I lis­tened. For that rea­son, I sup­port pas­sage of this bipar­ti­san bill mak­ing mid­dle class tax cuts per­ma­nent. House Repub­li­can lead­ers should let the House vote on this bill so we can send it to the Pres­i­dent and stop tax hikes on all work­ing Amer­i­cans that take effect today.

This com­pro­mise is not per­fect, but it is nec­es­sary.

This bill pre­serves tax cuts for all mid­dle class Amer­i­cans while let­ting tax cuts for the high­est earn­ers to expire. The bill lim­its tax deduc­tions for the wealth­i­est Amer­i­cans. The end result will be the most pro­gres­sive tax code the Unit­ed States has seen in decades.

My top pri­or­i­ty is to grow the econ­o­my and cre­ate jobs. This bill pre­serves tax cred­its that help the mid­dle class and help stu­dents pay for col­lege. The preser­va­tion of research and man­u­fac­tur­ing incen­tives ensures busi­ness­es will keep invest­ing in future growth.

Cou­pled with leg­is­la­tion I authored in the recent defense bill that sup­ports small busi­ness inno­va­tion, these mea­sures ensures the Unit­ed States con­tin­ues mak­ing the invest­ments it needs to cre­ate jobs in the long run.

The bill does not include cuts to Medicare and Social Secu­ri­ty which would hurt seniors. While enti­tle­ment reforms con­tin­ue to be part of the dis­cus­sion as we address the deficit, we must make sure that any changes to these crit­i­cal pro­grams pro­tect the guar­an­teed ben­e­fits that seniors are due.

The exten­sion of enhanced unem­ploy­ment insur­ance ben­e­fits will make sure that folks who are out of work through no fault of their own are able to stay in their homes and pro­vide for their fam­i­lies.

This bill only gets half the job done. I am dis­ap­point­ed it does not deal with across-the-board spend­ing cuts or the debt ceil­ing.

The debt ceil­ing must be raised imme­di­ate­ly. Rais­ing the debt ceil­ing does not allow more spend­ing, but instead makes sure the Unit­ed States can pay for the debts that it has already incurred.

Con­gress still needs to tack­le the deficit in a mean­ing­ful way. I con­tin­ue to sup­port a bold and bal­anced plan to cut $4 tril­lion from the deficit through a com­bi­na­tion of tar­get­ed spend­ing cuts and increased rev­enues. We must replace across-the-board spend­ing cuts in the sequester with a bal­anced plan that pre­serves vital invest­ments in infra­struc­ture, edu­ca­tion and research that make our econ­o­my grow.

None of my con­stituents deserve to be forced to endure this eco­nom­ic brinks­man­ship. Con­gress has a respon­si­bil­i­ty to work in a bipar­ti­san man­ner to pre­vent future man­u­fac­tured crises like the fis­cal cliff. I com­mit to work­ing with my mod­er­ate Repub­li­can and Demo­c­ra­t­ic col­leagues to forge bipar­ti­san com­pro­mis­es that make our econ­o­my stronger.

We have not received state­ments from any of Wash­ing­ton or Ore­gon’s oth­er U.S. Rep­re­sen­ta­tives explain­ing their votes. Raúl Labrador and Mike Simp­son have state­ments up. So does Don Young. Den­ny Rehberg has yet to make a state­ment.

Pres­i­dent Oba­ma appeared in the James Brady Press Brief­ing Room at the White House to react to the House vote at 8:20 PM Pacif­ic Time.

“A cen­tral promise of my cam­paign for Pres­i­dent was to change the tax code that was too skewed towards the wealthy at the expense of work­ing mid­dle-class Amer­i­cans. Tonight we’ve done that.”

“Thanks to the votes of Democ­rats and Repub­li­cans in Con­gress, I will sign a law that rais­es tax­es on the wealth­i­est two per­cent of Amer­i­cans while pre­vent­ing a mid­dle-class tax hike that could have sent the econ­o­my back into reces­sion and obvi­ous­ly had a severe impact on fam­i­lies all across Amer­i­ca.”

We dis­agree with the pres­i­dent that allow­ing all of the Bush tax cuts to expire would have sent the econ­o­my back into reces­sion. The econ­o­my is not a deity. Econ­o­my is just a word that we use to refer to our sys­tem for coor­di­nat­ing the pro­duc­tion of goods and ser­vices. The econ­o­my is “noth­ing more or less than what we make and con­sume, noth­ing out­side of us,” as Anat Shenker-Oso­rio writes in Don’t Buy It.

Con­ven­tion­al macro­eco­nom­ics con­sid­ers rais­ing tax­es to be con­trac­tionary fis­cal pol­i­cy. How­ev­er, reduc­ing expenditures/cutting ser­vices is also con­trac­tionary fis­cal pol­i­cy… and it caus­es far greater harm than rais­ing tax­es.

So, if our goal is to encour­age eco­nom­ic growth with­out increas­ing our debt (because we do not want to be run­ning unman­age­able deficits), then we should be allow­ing all of the Bush tax cuts from 2001 and 2003 to expire, and using the regained rev­enue pri­mar­i­ly to address our infra­struc­ture deficit while also pay­ing down our fis­cal deficit. Recall that we did just fine in the 1990s under Pres­i­dent Bill Clin­ton when tax­es were high­er for every­body.

Let’s get some addi­tion­al con­text from Paul Krug­man and Robin Wells:

Expan­sion­ary or con­trac­tionary fis­cal pol­i­cy need not take the form of changes in gov­ern­ment pur­chas­es of goods and ser­vices. Gov­ern­ments can also change trans­fer pay­ments or tax­es. In gen­er­al, how­ev­er, a change in gov­ern­ment trans­fers or tax­es shifts the aggre­gate demand curve by less than equal-sized change in gov­ern­ment pur­chas­es, result­ing in a small­er effect on real GDP.

To see why, imag­ine that instead of spend­ing $50 bil­lion on build­ing bridges, the gov­ern­ment sim­ply hands out $50 bil­lion in the form of gov­ern­ment trans­fers. In this case, there is no direct effect on aggre­gate demand as there was with gov­ern­ment pur­chas­es of goods and ser­vices. Real GDP goes up only because house­holds spend some of that $50 bil­lion — and they prob­a­bly won’t spend it all.

(from Macro­eco­nom­ics, Sec­ond Edi­tion)

When we invest in pub­lic ser­vices with our tax dol­lars, that invest­ment cre­ates a rip­ple effect that spreads out­ward, lift­ing the econ­o­my.

This rip­ple effect is known in eco­nom­ics as the mul­ti­pli­er, defined by Krug­man and Wells as “the ratio of the change in real GDP caused by an autonomous change in aggre­gate spend­ing to the size of the autonomous change”.

(Whew, that’s a mouth­ful!)

The mul­ti­pli­er also works in reverse: When we evis­cer­ate ser­vices by gut­ting their fund­ing, real GDP falls by a greater amount and the econ­o­my suf­fers.

How­ev­er, when we cut tax­es or low­er tax rates, it’s up to house­holds and firms to pro­vide a boost in real GDP. And as we have seen, many house­holds and firms choose to save or pay down debt when they get the oppor­tu­ni­ty, rather than spend­ing or invest­ing. Peo­ple tend to be reluc­tant to spend or invest when they feel uncer­tain about the future. For instance, an exec­u­tive feel­ing bull­ish about the econ­o­my and the direc­tion of the coun­try is far more like­ly to expand his or her com­pa­ny’s oper­a­tions than an exec­u­tive pes­simistic about prospects for growth.

H.R. 8 does end the Bush tax cuts for the wealth­i­est Amer­i­cans, gen­er­at­ing more than $600 bil­lion for the trea­sury over ten years. How­ev­er, the Trea­sury is also los­ing near­ly $4 tril­lion over ten years because oth­er tax cuts are being extend­ed. (These esti­mates are pro­vid­ed by the Con­gres­sion­al Bud­get Office).

Pres­i­dent Oba­ma acknowl­edged dur­ing his remarks that aus­ter­i­ty mea­sures will not result in a stronger econ­o­my. “[W]e can’t sim­ply cut our way to pros­per­i­ty,” he not­ed. “Cut­ting spend­ing has to go hand-in-hand with fur­ther reforms to our tax code so that the wealth­i­est cor­po­ra­tions and indi­vid­u­als can’t take advan­tage of loop­holes and deduc­tions that aren’t avail­able to most Amer­i­cans.”

“And we can’t keep cut­ting things like basic research and new tech­nol­o­gy and still expect to suc­ceed in a 21st cen­tu­ry econ­o­my. So we’re going to have to con­tin­ue to move for­ward in deficit reduc­tion, but we have to do it in a bal­anced way, mak­ing sure that we are grow­ing even as we get a han­dle on our spend­ing.”

The Pres­i­dent also sig­naled he will take a dim view of Repub­li­can attempts to exploit the statu­to­ry bor­row­ing lim­it, or debt ceil­ing, to extract deep con­ces­sions from the White House in a sec­ond round of fis­cal deal­mak­ing.

“While I will nego­ti­ate over many things, I will not have anoth­er debate with this Con­gress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” the Pres­i­dent told the White House press corps (and Repub­li­cans watch­ing on tele­vi­sion).

“Let me repeat:  We can’t not pay bills that we’ve already incurred. If Con­gress refus­es to give the Unit­ed States gov­ern­ment the abil­i­ty to pay these bills on time, the con­se­quences for the entire glob­al econ­o­my would be cat­a­stroph­ic — far worse than the impact of a fis­cal cliff [man­u­fac­tured fis­cal cri­sis].”

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One Comment

  1. The ESD web­site con­tains con­tra­dic­to­ry infor­ma­tion about the sta­tus of exten­sions in WA State.

    This web­site states that peo­ple can peo­ple can be con­sid­ered for ben­e­fits.

    This page says that the exten­sion pro­gram in WA State was shut down in April.

    # by Linda Seltzer :: January 3rd, 2013 at 10:44 PM

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