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September 3, 2015

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Why lawmakers’ failure to beat fiscal cliff deadline might benefit them

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ASSOCIATED PRESS

Senate Majority Leader Harry Reid, left, of Nevada, talks with a journalist as the elevator doors close as he departs the Capitol after a vote about the fiscal cliff, on Capitol Hill, Tuesday, Jan. 1, 2013 in Washington.

Fiscal Cliff

House Majority Leader Eric Cantor of Va., right, leaves a Republican caucus meeting on Capitol Hill in Washington, Tuesday, Jan. 1, 2013. Cantor, the No. 2 Republican in the House leadership says he opposes a Senate-passed measure to avert the so-called fiscal cliff. Launch slideshow »

Congress has missed the fiscal cliff deadline, but in doing so, it may have actually made the road to avoiding the cliff’s adverse economic effects much smoother than it would have been otherwise.

By temporarily going over the cliff, Congress undid one of the hardest and fastest sticking points lawmakers had with the idea of striking a deal: The fact that to do so, some people would have had to pay more in taxes.

The fiscal cliff is the combination of tax hikes and across-the-board government spending cuts that were scheduled to take effect at midnight on Jan. 1.

Heading into this New Year’s fight, Democrats had wanted to avoid the economic crunch of across-the-board tax hikes and spending cuts by extending pre-2013 tax rates on incomes up to $250,000, while Republicans had insisted that raising taxes at any income level was anathema.

But what were potential tax hikes in 2012 are, in fact, tax cuts in 2013.

On Jan. 1, according to the deadline Congress imposed on itself through various agreements over the past two years, income taxes at all levels shot up to 1990s levels, and across-the-board “sequestration” cuts went into effect.

The true effect of both of those events won’t actually come to fruition for several weeks, as Congress has already funded the federal government through March and the Internal Revenue Service isn’t requiring payroll offices to implement the increased deductions that may result from new tax rates until mid-February.

But in that window, Congress has wiggle room to bring down tax rates again — avoiding both the economic drag of the full, fiscal cliff and the potential political lead weight of having voluntarily voted to raise taxes at certain higher income levels.

In fact, because the Senate voted in the wee hours of Jan. 1 — and the House of Representatives isn’t scheduled to vote until at least noon — no lawmaker in Congress is going to have to face the political hurdle of defending a vote to raise taxes as part of the fiscal cliff deal during a future campaign reckoning.

Just after 2 a.m. Tuesday, the Senate voted 89-8 to approve a deal, struck between Vice President Joe Biden and Senate Minority Leader Mitch McConnell over Sunday and Monday, to permanently extend pre-Jan. 1 tax rates on income levels up to $400,000 for individual tax filers, and $450,00 for couples.

It also extends unemployment benefits, the sales tax deduction, the mortgage debt relief deduction and energy tax credits through 2013, and pegs the maximum amount of inheritances that can be waived under the estate tax to inflation.

The deal secured the votes of all but three Senate Democrats (and Sen. Frank Lautenberg of New Jersey, who had the flu) and all but five Republicans. Nevada Sens. Harry Reid and Dean Heller both voted for the deal.

That gives the bill good momentum as it heads to the House today, when it will face its most existential threat.

House Republicans have routinely objected to efforts to only partially extend the Bush-era tax cuts, no matter what they are packaged with. Two weeks ago, House Speaker John Boehner rejected an offer from President Barack Obama to balance tax cuts up to $400,000 with an extension of unemployment benefits and authority to raise the debt limit. Barely a week later, House Republicans rejected a proposal brought by Boehner himself to extend tax cuts on incomes up to $1 million, because it too didn’t go far enough.

Not all Republicans are of equal mind in that regard — Nevada Reps. Mark Amodei and Joe Heck, for instance, were prepared to support Boehner in his $1 million venture. But enough conservative Republicans balked that Boehner pulled the bill before Christmas.

In the last minutes of 2012, Boehner left the door open for himself to amend the legislation the Senate would send him, apparently anticipating resistance in the House that could set another round of inter-house congressional ping-pong in motion.

“The House will honor its commitment to consider the Senate agreement if it is passed,” Boehner promised, but then added: “Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation.”

When asked directly about the difference between voting for a tax compromise before vs. after Jan. 1, lawmakers downplayed the significance.

“You’d have to talk to the whip team for that one. That’s not an issue for me,” Heck said Monday.

But Heck and Amodei both downplayed the significance of the fiscal cliff deadline this week, hinting that they — and Republicans — would rather take a vote later than sooner.

“We have (Tuesday). We have the 2nd. The goal is to try to get something done before the markets open again on Wednesday,” Heck said Monday. “Really that’s what we need to look at. So we have all day (Tuesday).”

“No,” Amodei said flatly on Sunday, when asked if Congress ought to vote to avert the fiscal cliff before the Jan. 1 deadline. “This bit where we have to go to the edge of some manufactured drama-crisis … I hope this doesn’t become the new way of doing business.”

Democrats, however, were stressing in the days leading up to the turn of 2013 that it was important to respect the Jan. 1 deadline.

“That’s just semantics,” said Nevada Rep. Shelley Berkley, acknowledging and then quickly dismissing the validity concerns she’d heard about a vote for tax hikes vs. cuts after the change of the year Sunday.

She said House members were being told to prepare to be in session through Jan. 2. “We should be cleaning up our own mess,” Berkley said.

The House ultimately disbanded Monday evening, several hours before the fiscal cliff’s midnight deadline.

In the Senate, it wasn’t concerns about voting for tax increases that held up progress — it was concerns that they weren’t voting to implement enough of them.

Liberal Senate Democrats saw the McConnell-Biden plan and its $400,000 threshold as a sellout, especially after Democrats emerged from the 2012 election believing they had a public mandate to allow tax cuts above the $250,000 income level to expire.

“No deal is better than a bad deal, and this looks like a very bad deal,” Iowa Democratic Sen. Tom Harkin said Monday morning, arguing that the emerging deal would forever, and mistakenly, define the “middle class” as people earning up to $400,000.

Reid never did offer his personal assessment of the legislation, though he did praise lawmakers for banding together to avert the fiscal cliff with a measure that made “real cuts” in the wee hours of Tuesday morning.

The 157-page bill — all drafted Monday — would also increase the deficit by $4 trillion over 10 years. But that number wasn’t publicly circulated until after the vote was called.

A vote in the House is likely to be made easier not only by the now-disappeared specter of raising tax cuts, but also by the fact that many House Democrats are expected to go along with the venture. House Democratic Leader Nancy Pelosi already accepted the compromise deal before the Senate vote, according to reports; meanwhile, lawmakers like Berkley had said all along they would be amenable to voting for a bill that extended tax cuts on incomes up to $500,000.

Should the House balk at passing the now more-philosophically-palatable fiscal cliff deal on Tuesday or Wednesday, however, it would pitch this issue into the new Congress.

Reid promised the Senate that Tuesday morning’s vote would be their last of the year.

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