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).
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.
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].”