If the fiscal cliff is to be avoided, Alabamians can play a role.
Elected officials are nearly unanimous that failure to reach a deal by Jan. 1 would severely damage the U.S. economy. They also agree that spending needs to come down. Since the presidential election, there appears to be bipartisan agreement that revenue needs to increase.
The most likely deal-breaker is whether an increase in the top marginal tax rate for households earning more than $250,000 is a component of the increased revenue.
The “fiscal cliff” is shorthand for events that — absent congressional action — will begin on the first day of 2013. The income-tax cuts implemented under the Bush administration would expire, raising taxes on all earners, and the payroll tax holiday would end. At the same time, automatic spending cuts would reduce Medicare doctor rates, end extended unemployment benefits and dramatically reduce defense and domestic spending.
Most economists agree the combination would push America back into a recession. The spending cuts would be especially hard on Alabama, which relies heavily on domestic and defense spending.
The most likely sticking point involves the top marginal rates for the highest-income Americans because it is a symbol for both parties.
President Barack Obama campaigned on the platform that the Bush tax cuts would end for the rich, and he won re-election convincingly. Most Republicans signed a pledge that they would not agree to raise any taxes.
Democrats in Congress want to see an increase in the top marginal rate. Most Republicans from states that voted for Obama recognize they would oppose the small tax increase — from 35 to 39.6 percent — at their political peril.
The problem comes in states such as Alabama, which voted overwhelmingly against Obama. Elected representatives from this state feel immune from the pressure to compromise.
An increase in the top marginal rate would affect few Alabamians. While the census does not collect data on households making more than $250,000, only 2 percent of Alabama households make more than $200,000. The state’s median household income is in the bottom five of the nation, and it has the third-highest poverty rate.
An increase in the top marginal rate would be almost irrelevant to this poor state, but the spending cuts of the fiscal cliff would be devastating to all Alabamians, especially defense-heavy north Alabama.
Alabamians of both parties should be pushing their congressional representatives to reach a deal. Alabama needs sensible leaders, not stubborn ideologues.
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