Column submitted by U.S. Congressman Pat Tiberi
Nearly everywhere you turn headlines give updates on the “looming fiscal cliff” and give dire warnings about what would happen if a compromise isn’t reached. But there’s a lot of confusion about what exactly the fiscal cliff is and what the consequences are if the country reaches it.
The fiscal cliff is a combination of nearly $600 billion in tax hikes and indiscriminate spending cuts set to take effect on January 2, 2013. The Congressional Budget Office predicts that if the nation goes “over” the fiscal cliff, we will go back into recession and unemployment rates could top nine percent. One study estimates Ohio could lose 100,000 to 350,000 jobs if the fiscal cliff is not avoided. In addition, reports indicate the effects of the fiscal cliff are already being felt as businesses have slowed hiring and growth opportunities.
I believe the American people deserve better. We must avoid the fiscal cliff to prevent tax increases on all American families and business owners. We must also quickly work to resolve the underlying systemic issues plaguing the economy by scaling back government spending and reforming our outdated tax code.
There will have to be give and take from both political parties. The reality is we have divided government and each side must be willing to come to the table. We must also have leadership from President Barack Obama in tackling tax reform and entitlement reform. To date, the president has not offered meaningful tax, Social Security or Medicare reform proposals. I hope that in the weeks ahead we can count on his leadership and his willingness to work with members of both parties to make our nation stronger. Newspaper editorial boards from the Washington Post and USA Today, both of whom endorsed President Obama for reelection, have published editorials calling on him to compromise on entitlement reform.
As you know, House Republicans have passed billions of dollars in spending cuts to discretionary spending programs through the annual budget and appropriations process. This includes nearly half a trillion dollars from the Department of Defense (DoD). However, the true driver of our debt is mandatory spending programs. “Mandatory spending” is not subject to the same annual appropriations process and increases automatically. Programs like Medicare and Social Security are among some of the mandatory spending programs and are on an unsustainable path. The non-partisan Congressional Budget Office (CBO) reported that Medicare cost $486 billion and Social Security cost $731 billion in 2011 alone. That’s over one and a half times the amount spent on the military. According to the CBO, mandatory spending programs made up 62.6 percent of total government spending in 2011 and continues to increase. In that same year, the DoD budget made up less than 20 percent of government spending. The 2012 Medicare Trustees report showed that general revenues, or taxpayer funds, account for 42 percent of total income to the Medicare program and are the largest single source of income to the Medicare program as a whole. General revenues are expected to continue growing as a share of total Medicare financing and to add significantly to the federal budget pressures. Taxes paid by individuals into the Medicare program only cover about one third of benefits paid out to seniors.
Out of control mandatory spending is not only bad for our national debt and deficits, but is bad for those who count on these programs. The Obama Administration’s actuaries, accountants responsible for assessing the viability of these programs, say that the programs will go bankrupt in little more than a decade. The 2012 report issued by the Social Security and Medicare Boards of Trustees indicates the amount paid out in Social Security Old-Age and Survivors Insurance benefits will begin permanently exceeding the amount contributed in Social Security taxes by 2033. This is three years sooner than what the Social Security Administration predicted in 2011. They also report that Medicare will become bankrupt by year 2024. According to the 2010 Social Security Trustee Report, Social Security paid out more that year (2010) than it took in for the first time since 1983. Clearly, reform is needed today to ensure that current recipients continue to receive their benefits while keeping these programs sustainable for future beneficiaries.
Our tax code has not undergone large scale reform since 1986. Since that time, countless exclusions, deductions, credits and special rules have been added to the tax code, which amounts to $1 trillion per year, roughly the same amount of income tax revenue the U.S. Treasury receives. Nearly 4,500 changes have been made to the tax code since 2001, averaging more than one each day over the last decade. This has resulted in a tax code that is often unfair, treating people in similar situations much differently than one another. Today’s tax code is complex, burdensome and costly for families and businesses. Nearly nine out of ten families must either hire a tax preparer or purchase software in order to file their taxes. A representative for the American Institute of Certified Public Accountants characterized the current tax system as “…both inefficient and ineffective…”
House Republicans propose a two-part plan for fixing our tax code. First, extend nearly all of the expiring tax provisions until the end of 2013 to avoid the fiscal cliff. Second, work to enact a bipartisan overhaul of the tax code next year. This summer the House of Representatives passed H.R. 8, the Job Protection and Recession Prevention Act of 2012. H.R. 8 extends current tax rates for all Americans. It stops a tax hike on middle class households with the Alternative Minimum Tax patch and prevents the death tax from unfairly harming many family businesses.
This summer the House of Representatives also passed H.R. 6169, The Pathway to Job Creation through a Simpler, Fairer Tax Code Act of 2012. The legislation sets forth a timetable to enact comprehensive tax reform in 2013.
It’s time our tax system puts American job-creation first. The U.S. has the highest corporate tax rate in the world. This makes the U.S. less attractive for investment by successful companies. I have heard from many Central Ohio small business owners about the looming tax hike they face if nothing is done. Uncertainty regarding our tax code’s temporary measures often hinders small business’ ability to grow and expand as well. Many small businesses file taxes as individuals. When President Obama talks about raising taxes on the rich, he includes individuals and businesses filing as individuals making $250,000 or more a year. This would raise taxes on millions of small businesses across the country and right here in Ohio. We must reform the tax code to make the U.S. attractive to big business to invest at home and to incentivize entrepreneurs and smaller businesses to expand. This would mean more American jobs and more revenue for the government without having to raise taxes.
Republicans in the House of Representatives put revenue on the table the day after the election as a sign that we are truly serious about working across the aisle to help all Americans avoid the fiscal cliff. The president responded three weeks later with an unserious offer which failed to receive a single yes vote in the U.S. Senate. Speaker John Boehner (R-OH) responded to the president’s offer within days with the House’s offer. This offer includes $2.2 trillion in deficit reduction which includes spending cuts, entitlement reform and adding roughly $800 billion in new tax revenue. This proposal is based on an outline from President Bill Clinton’s Chief of Staff, Erskine Bowles. It is my hope that under the leadership of President Obama and House Speaker Boehner, we can come together to avoid the fiscal cliff and create a bridge that will lead to comprehensive tax and entitlement reform.
U.S. Congressman Pat Tiberi represents the 12th Congressional District of Ohio in the United States House of Representatives. Currently, the 12th District is made up of Delaware County and portions of Franklin and Licking Counties. In January, the 12th District will change as a result of Congressional redistricting and will be made up of Delaware, Licking, and Morrow Counties and portions of Franklin, Marion, Muskingum, and Richland Counties. Congressman Tiberi is the Chairman of the Ways and Means Subcommittee on Select Revenue Measures.
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