In the sharply contested fight over how to avoid the automatic tax increases and spending cuts that became known as the fiscal cliff, President Obama emerged as the "clear political winner," according to a new study by the Pew Research Center for People and the Press.
But the legislation that passed, entailing continued tax relief for most Americans and little in the way of spending cuts, received a cool reception with the public, with more respondents in Pew's survey saying the bill would be harmful to people like themselves, the deficit and the economy than those who said they thought it would help.
Further, Pew's polling revealed deep partisan splits in respondents' view of the legislation, with self-identified Republicans panning the bill and expressing disappointment with how party leaders handled the negotiations.
For advisors, the fiscal cliff debate was significant for the many tax rates that were in play. In the ultimate deal signed into law, the top ordinary income rate increased from 35% to 39.6%, while all households with annual incomes below $450,000 saw their lower, Bush-era rates become permanent. Investors above that income level will also pay higher taxes on capital gains and dividend income, with the top rates for both jumping from 15% to 20%. For single filers the annual-income threshold is set at $400,000.
Additionally, estates valued above $5 million would be taxed at 40%, up from the previous rate of 35%.
On the spending side, the American Taxpayer Relief Act pushed back the effective date for the automatic spending cuts, or sequester, by two months. Members of both parties agree the indiscriminate cuts in defense and nondefense spending that the sequester would entail are unwise, and that they should be replaced with more targeted reductions, but consensus is in short supply in talks about what federal programs should be cut and by how much.
With more action taken on raising taxes on the wealthy -- a cornerstone of Obama's reelection campaign -- than on the spending cuts GOP lawmakers are demanding, 57% of respondents to Pew's survey said they thought that the president got the upper hand in the fiscal-cliff negotiations. Among Republican respondents, 74% said they thought Obama got more of what he had been seeking in the deal than did GOP lawmakers, and just 16% said they approved of the final bill.
Pew also sought to gauge the approval rating for both sides in the debate. Forty-eight percent of respondents said they approved of Obama's role in the negotiations, while 19% said they thought the Republicans handled them well.
Among Republican respondents, just 40% said they approved of how GOP leaders handled the talks, while Democrats surveyed were more solidly supportive of the president, with 81% expressing approval.
The fact that lawmakers were unable to pass legislation before the end-of-year deadline, and that the bill that the president signed into law only postponed the automatic spending cuts for two months, revisits what for some analysts is an alarming pattern in Washington of last-minute deals to avert potential fiscal calamities while leaving the structural challenges around spending and taxes unaddressed.
Among those is Andy Friedman, principal at the policy-analysis group Washington Update, who in a note to members of the media warned that in addition to having the sequester now scheduled for March 1, lawmakers will also have to deal with an increase to the federal government's borrowing limit or risk default, and a looming appropriation deadline to keep the federal government funded and avert a shutdown. Those types of fights, which Friedman calls "forcing events" for the hard deadlines they carry, have lately been marked by partisan rancor and a brinksmanship that, with the nation's economic vitality at issue, have roiled financial markets and undermined investor confidence.
"What is worrisome is how much closer to the forcing event we have to be before a compromise is reached, and how, with each forcing event, Congress seems to kick the can a shorter distance down the road," Friedman said.
In short, the next couple months could be a bumpy ride. The triad of the sequester, debt ceiling and federal appropriations, with their closely bunched deadlines, portends another major fight over taxes and spending programs.
"To raise the debt ceiling and address the other upcoming forcing events, the Republicans will demand spending cuts (which were almost entirely absent in the fiscal cliff compromise)," Friedman said. "It is no longer possible to meet those demands simply by cutting discretionary spending. The Democrats in turn will demand that the spending cuts be balanced with additional tax increases. It is no longer possible to meet those demands simply by raising tax rates. That means we are heading for a debate over entitlements and tax reform."
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