Fiscal Cliff Deal Delays Reckoning

Congress and the White House have once again averted a crisis by reaching an agreement on income tax rates and other issues.

But a day of reckoning with federal spending is still looming because the so-called fiscal cliff deal virtually ignores the spending side of the books.

What Congress and President Barack Obama have done is again put off major action on the federal deficit, while settling the most pressing issue at hand — the federal income tax rates for 2013. The $16 trillion debt and the ballooning obligations known as entitlements still haven't been faced — and they threaten the long-term stability of the U.S. economy.

Congress postponed for two months some major budget cuts known as "sequestration." The fiscal cliff deal also stopped an obnoxious reduction to Medicare providers — the "doc fix" — an old tactic that has never solved Medicare's budgetary problem.

But Congress punted on the real fiscal cliff involving Medicare spending, the national debt and persistent budget deficits in the range of $1 trillion or more. This mess must be cleaned up.

Tuesday's deal on tax rates will keep most Americans from getting socked with tax hikes — at least for federal income taxes. The nonpartisan Congressional Budget Office has said the tax deal will cost $4 trillion in the next 10 years.

Since the Bush tax rates were made permanent for well over 95 percent of income earners, and since tax rates were not accompanied by significant spending cuts, the tax solution will actually add to the debt.

T he entire fiscal cliff scenario was supposed to be centered on eliminating the budget deficit and reducing the national debt. It was supposed to involve a "grand bargain" that would reform entitlements and rein in long-term spending. Yet the White House has not articulated any goals for doing so.

Congress dealt with higher income tax rates that would have slammed middle-class earners hard. Congress agreed to keep the Bush tax rates of 2001 and 2003 for all earners making less than $400,000 as individuals, or $450,000 as families. Those higher earners previously paid a top tax rate of 35 percent. They will now pay 39.6 percent.

Another 30 million Americans were saved from higher taxes as Congress made permanent a "patch" to the hated Alternative Minimum Tax, or AMT.

But Obama's temporary payroll tax cut expires. That means the 4.2 percent wage earners pay on income will rise to 2010 levels, or 6.2 percent. That will pinch workers, especially those on the lower end of the wage scale.

Democrats and Republicans should stop this series of cliffs, shutdowns and default threats that have gripped Washington since early 2011. The economy needs stable tax rates, federal budget restraint and entitlement reform.

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