Thank you for contacting me regarding legislation recently enacted by Congress to address the automatic spending cuts and tax increases known as the "Fiscal Cliff" that were scheduled to take place on January 1, 2013. I appreciate hearing from you about this important topic.
Over the last few decades, middle class families have seen their jobs become more insecure, their wages stagnate, their savings and pensions shrink, and the cost of education skyrocket. At the same time, the wealthiest among us and the largest corporations have grown ever richer.
Our economy is out of balance, and this lack of balance threatens the very fabric of our entire economy. That's because the economy is driven forward by middle class families with money in their pockets. We need to start to put our economy back in balance with an economic policy that will help to rebuild the middle class, providing good jobs now and in the long term.
Over the course of the debate on the fiscal cliff, I repeatedly stated that I would evaluate any legislation to avert our economic and fiscal challenges based upon the impact it would have on middle-class families. Unfortunately, I did not feel that the final agreement reached would help to strengthen the middle class, and as a result I voted against the measure. While I fully understand the economic impacts that would follow if the tax increases and spending cuts were allowed to take effect as scheduled, I do not believe that the legislation put forward was the appropriate or the only response to our present challenges. Specifically, I have three concerns about the legislation.First, this legislation does not address our number one priority - creating well-paying, middle-class jobs immediately. While the economy has improved considerably since the depths of the Great Recession, millions of Americans are either unemployed or working in jobs that do not pay adequate incomes to allow them to support their families. Short-term job creation and long-term deficit reduction are both critical, and I was disappointed that the bill failed to provide the direct investments in immediate job creation measures that our country desperately needs.
Second, I am concerned that the legislation does not raise enough revenue to put our country on a path to fiscal sustainability while still allowing us to make the important investments in important areas that support a strong middle class, especially job training and education. Under the agreement, individuals and families earning less than $400,000 and $450,000 per year respectively will see their tax rates permanently extended at 2012 levels.
While I was pleased that middle class families did not experience a tax increase, extending tax rates for many wealthy individuals will reduce revenues by hundreds of billions of dollars over the next decade. By not allowing tax rates on wealthy households earning between $250,000 and $450,000 to revert back to Clinton-era levels - a time when economic growth was robust and job creation was at all-time highs - we increase the risk to important benefits for the middle class. With government spending dropping and deficits remaining high, every dollar of sacrifice that the wealthy forgo in this deal is a sacrifice that we will later be asking middle class Americans to give up in earned benefits such as Social Security and Medicare.
Finally, I am concerned that the changes made to the tax code will make our system of taxation less progressive and over time provide fewer benefits to those with modest incomes. While the legislation made permanent tax benefits for wealthy Americans, such as the income tax rates on upper income earners and the estate tax, tax measures targeted at the middle class families - especially those with children - are only extended for five years. This includes the American Opportunity Tax Credit, which provides families $2,500 annually to help pay for college. It also includes an expanded Earned Income Tax Credit, an effective tool for helping working families escape poverty, and the Child Tax Credit. The temporary extension of the tax benefits for middle class Americans will make it much more difficult to renew them in the future.
Sometime in February, Congress will likely consider legislation to reduce the deficit, raise the debt ceiling, and avoid automatic across the board spending cuts called sequestration. Throughout that process, I will continue to advocate for a balanced approach that will raise revenue from those who can afford to contribute and decrease spending in ways that minimize the adverse impact on the middle class and those of more modest incomes.
As I continue my work here in the Senate, I will continue to place the highest priority on rebuilding the middle class and promoting economic security among working families. Thank you for writing to me.
Sincerely,
Tom Harkin
United States Senator
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