GloucesterTimes.com, Gloucester, MA

January 2, 2013

Local businesses hanging on 'cliff' talks

From Wire and
Staff Reports

---- — WASHINGTON — Legislation to negate the so-called “fiscal cliff” of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies headed to the GOP-dominated House Tuesday after bipartisan, middle-of-the-night approval in the Senate capped a New Year’s Eve drama unlike any other in the annals of Congress.

But while the measure cleared the Senate on an 89-8 vote early Tuesday, hours after Vice President Joe Biden and Senate Republican Leader Mitch McConnell of Kentucky sealed a deal, the fallout from any House action remained uncertain as of late Tuesday night.

And while much of the talk has focused on prospective tax hikes and general spending cuts, some Cape Ann businesses in particular continue to twist regarding the status of Defense contracts that had been pegged for so-called “sequestration,” across-the-board cuts as the so-called “cliff” of cuts loomed.

A total of nine Cape Ann businesses — from food wholesalers to engine parts manufacturers to computer programmers — held a total of 23 ongoing contracts with the U.S. Department of Defense, worth at least $9.2 million in 2011, according to data gathered by a nonprofit, non-partisan policy research group called Center for Security Policy.

Those were topped by Gorton’s of Gloucester, which is holding a deal worth more than $1 million to supply seafood for the department, while Gloucester engine parts manufacturer Bomco, Inc. held at least $189,000 in Defense contracts, according to the data.

The Senate measure approved early Tuesday would prevent middle-class taxes from going up but would raise rates on higher incomes. It would also block spending cuts for two months, extend unemployment benefits for the long-term jobless, prevent a 27 percent cut in fees for doctors who treat Medicare patients and prevent a spike in milk prices.

The measure ensures that lawmakers will have to revisit difficult budget questions in just a few weeks, as relief from painful spending cuts expires and the government requires an increase in its borrowing cap.

House Speaker John Boehner pointedly refrained from endorsing the agreement, though he promised a vote on it or a GOP alternative right away. But he was expected to encounter opposition from House conservatives.

“It’s three strikes in my book and I’ll be voting no on this bill,” Rep. Tim Huelskamp told CNN Tuesday morning. Huelskamp says the legislation would impose a hardship on small businesses around the country and falls short of addressing the need for cuts in spending.

The measure is the first significant bipartisan tax increase since 1990, when former President George H.W. Bush violated his “read my lips” promise on taxes. It would raise an additional $620 billion over the coming decade when compared with revenues after tax cuts passed in 2001 and 2003, during the Bush administration. But because those policies expired at midnight Monday, the measure is officially scored as a whopping $3.9 trillion tax cut over the next decade.

President Barack Obama praised the agreement after the Senate’s vote.

“While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay,” Obama said in a statement. “This agreement will also grow the economy and shrink our deficits in a balanced way — by investing in our middle class, and by asking the wealthy to pay a little more.”

The sweeping Senate vote exceeded expectations — tea party conservatives like Pat Toomey, R-Pa., and Ron Johnson, R-Wis., backed the measure — and would appear to grease enactment of the measure despite lingering questions in the House, where conservative forces sank a recent bid by Boehner to permit tax rates on incomes exceeding $1 million to go back to Clinton-era levels.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation,” said a statement by Boehner and other top GOP leaders.

Lawmakers hope to resolve any uncertainty over the fiscal cliff before financial markets reopen Wednesday. It could take lots of Democratic votes to pass the measure and overcome opposition from tea party lawmakers.

Under the Senate deal, taxes would remain steady for the middle class but rise at incomes over $400,000 for individuals and $450,000 for couples — levels higher than President Barack Obama had campaigned for in his successful drive for a second term in office. Some liberal Democrats were disappointed that the White House did not stick to a harder line, while other Democrats sided with Republicans to force the White House to partially retreat on increases in taxes on multi-million-dollar estates.

The measure also allocates $24 billion in spending cuts and new revenues to defer, for two months, some $109 billion worth of automatic spending cuts that were set to slap the Pentagon and domestic programs starting this week. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship, certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.

Officials also decided at the last minute to use the measure to prevent a $900 pay raise for lawmakers due to take effect this spring.

Even by the dysfunctional standards of government-by-gridlock, the activity at both ends of historic Pennsylvania Avenue was remarkable as the administration and lawmakers spent the final hours of 2012 haggling over long-festering differences.

Republicans said McConnell and Biden had struck an agreement Sunday night but that Democrats pulled back Monday morning. Democrats like Tom Harkin of Iowa said the agreement was too generous to upper-bracket earners. Obama’s long-standing position was to push the top tax rate on family income exceeding $250,000 from 35 percent to 39 percent.

“No deal is better than a bad deal. And this looks like a very bad deal,” said Harkin.

The measure would raise the top tax rate on large estates to 40 percent, with a $5 million exemption on estates inherited from individuals and a $10 million exemption on family estates. At the insistence of Republicans and some Democrats, the exemption levels would be indexed for inflation.

Taxes on capital gains and dividends over $400,000 for individuals and $450,000 for couples would be taxed at 20 percent, up from 15 percent.

The bill would also extend jobless benefits for the long-term unemployed for an additional year at a cost of $30 billion, and would spend $31 billion to prevent a 27 percent cut in Medicare payments to doctors.