Tax Hikes Key to Fiscal Cliff Deal

WASHINGTON – New Mexico’s congressional Democrats insist that taxes on higher-income Americans should be part of any deal to avert deep federal budget cuts, while the delegation’s lone Republican is skeptical an agreement can be reached at all.

As Congress gets back to work in Washington after the Nov. 6 election, the top agenda item is negotiation to avoid $1.2 trillion in mandatory spending cuts that are part of a previous agreement to raise the nation’s debt limit. To raise the debt limit and avoid a federal credit default, Congress agreed last year to a series of across-the-board budget cuts after Dec. 31 of this year – a date representing a “fiscal cliff”- if lawmakers failed to reach agreement on a broader deficit reduction package before that date.

The budget cuts from the so-called sequestration deal would go into effect automatically after Dec. 31 if no new agreement is reached.

In New Mexico, the sequestration could cost $1.35 billion in federal money in 2013 and $1.928 billion each year from 2014 through 2021, according to a federal analysis.Â

The state’s numerous defense installations and national laboratories could be among the government programs to take the hardest hits. The sequestration could cut nearly $400 million for nuclear work in New Mexico next year, including Sandia and Los Alamos national labs and the Waste Isolation Pilot Plant near Carlsbad.

But the cuts wouldn’t just affect defense work. The spending reductions would diminish the budgets of a wide array of government programs, including public education, health care, the U.S. Forest Service, Native American services, job training and much more.

Programs exempted from sequestration cuts include Social Security and veterans’ benefits, Medicaid, unemployment insurance, temporary assistance for needy families, food stamps and some other programs that, for the most part, help low-income individuals.

Lee Reynis, head of the University of New Mexico’s Bureau of Business and Economic Research, analyzed the sequestration bill last year and found that, if enacted, the cuts could cost about 20,000 New Mexicans their jobs.

Hope for a deal

Rep. Martin Heinrich, a Democrat who won election to New Mexico’s soon-to-be open U.S. Senate seat, as well as Sen. Jeff Bingaman, the Democrat Heinrich is replacing after the first of the year, said they hope a deal is reached to stave off the draconian budget cuts.

But the only deal Heinrich and Bingaman said they could support would combine spending cuts with tax increases. They both said they grudgingly voted in favor of the debt limit increase and sequestration in 2011 to avoid a national credit default.

President Barack Obama said he would not accept any sequestration deal unless it includes tax hikes on household incomes of $250,000 per year and more. Some in Congress have suggested that threshold could be increased, possibly to $350,000 or even $1 million, to win enough Republican support to clear the GOP-controlled House.

“I think it’s pretty clear that there is an enormous amount of support among the American people for a shared responsibility approach,” Heinrich said. “My hope is that the Republicans will realize that Democrats are more than willing to compromise but they’re going to have to give on some of these revenue issues.

“If you take revenues off the table, boy, deficit reduction gets twice as hard,” Heinrich said.

Heinrich said he would resist a stopgap measure to delay the deadline by six months, as some members of Congress have suggested.

“I’m not a fan of that approach,” Heinrich said. “My hope is that we can get some meaningful reform and change in place now. It’s not going to be any easier in six months.”

Rep. Steve Pearce, a New Mexico Republican, voted against the initial debt deal that proposed sequestration, saying the deal didn’t go far enough toward paying down the national debt. Peace has long advocated for steep spending cuts, but he has also consistently said he would resist deep military cuts because national defense is a top priority.

The Republican House member sounded pessimistic about the chance for compromise in the current lame-duck session of Congress.

“I don’t know where the cohesiveness will come from,” Pearce said. “It hasn’t come in the last two years on any issue, so I’m worried about it.”

Pearce, who opposes allowing tax cuts to expire at any income level, said Democrats are clamoring for deep cuts in defense spending, but that might not get Congress any closer to a deal. He said a vote in support of military cuts would likely trigger a vote against a deal from the Republican side, making it difficult to find a majority in the narrowly divided U.S. House.

Averting ‘disaster’

Rep. Ben Ray Luján, D-N.M., said he supports a permanent extension of tax cuts to the middle class, and would consider proposals to raise the income threshold for extending tax cuts. Luján said he voted against the 2011 sequestration deal because it would cut programs for poor and middle-class Americans too deeply.

“Democrats have already shown we’re willing to include some cuts on the table as long as Republicans are willing to put revenues on the table,” Luján said. “I’m open to conversations. If we’re all asking to put revenue on the table, I’m willing to listen to my Republican colleagues. Whether it’s a quarter of a million, $350,000 or a million, let’s see where the conversation goes, but I’m definitely willing to have those conversations.”

Michelle Lujan Grisham, a Democrat who was elected to the 1st Congressional District seat Heinrich now occupies, also supports increasing taxes on top earners, as well as finding an immediate solution.

“I hope they deal with it right now, because it’s a disaster,” she said. “It (sequestration) would cause disastrous across-the-board cuts and damage some of our strongest programs.”

Lujan Grisham said some spending cuts could be achieved by reducing administrative costs in some federal agencies, such as the Department of Education of Bureau of Indian Affairs.

Sen. Tom Udall, D-N.M., said the tax discussions are likely to include raising the top threshold for upper-income earners. Neither Udall nor Heinrich would say which, if any, higher amount might be palatable to them.

“We need to put aside party for the country and come up with a good solution,” Udall said. “We’ve had these kinds of deficits in the past. We just need to find the political will to work together and get it done.”