Fiscal Cliff Hangover Part II: The House (The Final Insult)

David Williams

January 2, 2013

As many people may know by now, the House of Representatives passed the Senate version of the fiscal cliff bill with the vote occurring just before midnight on January 1, 2013. There were no changes to the Senate-passed bill so the same tax increases and spending increases were passed.  Let’s take a short trip down memory lane.  The bill extends the 2001 and 2003 Bush tax cuts for individuals making less than $400,000 and families making less than $450,000. In addition, the payroll tax cut will expire meaning that payroll taxes will increase from 4.2 percent to 6.2 percent, a real tax increase on the Middle Class.  The real kick in the wallet is a two-month delay in the automatic spending cuts (sequestration).  As reported by, “According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending [a revised Congressional Budget Office estimate pegs the number at $25 billion] while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.”  Click here here for a full list of provisions as reported by Politico.  With a $1 trillion deficit and a debt that has eclipsed $16.3 trillion, the lack of spending cuts is shameful.  Even if all the revenue is used for deficit reduction (which it likely won’t be), the total impact to the $1.1 trillion deficit will be $63.5 billion (if no more spending cuts are approved and the sequestration is avoided).


Tax Increases

Some will try to convince you that the bill that was passed was actually a tax cut.  The logic goes like this:  since tax rates went up automatically at 12:01 am on January 1, 2013 and the bill was passed after the increase, the bill locked in lower taxes for some income levels, thus creating new tax cuts.  The problem with this logic is that folks will be paying higher taxes in 2013 because certain income brackets will be paying more than last year and the payroll tax cut was not extended.  That means the payroll tax will go from 4.2 percent to 6.2 percent.  That is a real tax increase on the Middle Class.


Spending Cuts

There was a total of $25 billion in spending cuts.  Those were offset by increased spending in other areas like unemployment insurance which meant that spending will increase by $330 billion over ten years.  The deal also temporarily shut off the automatic spending cuts (sequestration) for two months.  The only positive to come out of this is that if Congress does nothing the sequester automatically goes into effect.


Tax Breaks (Extenders)

The biggest insult (on top of this injury) to taxpayers were the special tax breaks/extenders/earmarks that were buried deep in the bill. reported on the following:


  • $430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States.  Producers can expense up to $15 million of costs for their projects.
  • $331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.
  • $222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
  • $70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
  • $59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
  • $4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

What the fiscal cliff showed taxpayers is that despite all the rhetoric about change, it is still business as usual in Washington, D.C. where earmarks are still used to buy votes, tax increases are called tax cuts, and spending cuts will remain as elusive as finding Big Foot.