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davidtrump

Taxation, Budget and debt ceiling

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Taxation

Obama's presidency saw an extended battle over taxes that ultimately led to the permanent extension of most of the Bush tax cuts, which had been enacted between 2001 and 2003. Those tax cuts were set to expire during Obama's presidency since they were originally passed using a Congressional maneuver known as reconciliation, and had to fulfill the long-term deficit requirements of the "Byrd rule." During the lame duck session of the 111th Congress, Obama and Republicans wrangled over the ultimate fate of the cuts. Obama wanted to extend the tax cuts for taxpayers making less than $250,000 a year, while Congressional Republicans wanted a total extension of the tax cuts, and refused to support any bill that did not extend tax cuts for top earners.  Obama and the Republican Congressional leadership reached a deal that included a two-year extension of all the tax cuts, a 13-month extension of unemployment insurance, a one-year reduction in the FICA payroll tax, and other measures. Obama ultimately persuaded many wary Democrats to support the bill, though many liberals such as Bernie Sanders continued to oppose it. The $858 billion Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 passed with bipartisan majorities in both houses of Congress and was signed into law by Obama on December 17, 2010.

Shortly after Obama's 2012 re-election, Congressional Republicans and Obama again faced off over the final fate of the Bush tax cuts. Republicans sought to make all tax cuts permanent, while Obama sought to extend the tax cuts only for those making under $250,000. Obama and Congressional Republicans came to an agreement on the American Taxpayer Relief Act of 2012, which made permanent the tax cuts for individuals making less than $400,000 a year (or less than $450,000 for couples). For earnings greater than that amount, the income tax increased from 35% to 39.6%, which was the top rate before the passage of the Bush tax cuts. The deal also permanently indexed the alternative minimum tax for inflation, limited deductions for individuals making more than $250,000 ($300,000 for couples), permanently set the estate tax exemption at $5.12 million (indexed to inflation), and increased the top estate tax rate from 35% to 40%. Though many Republicans did not like the deal, the bill passed the Republican House in large part due to the fact that the failure to pass any bill would have resulted in the total expiration of the Bush tax cuts.

Budget and debt ceiling

US government debt grew substantially during the Great Recession, as government revenues fell and Obama largely eschewed the austerity policies followed by many European countries. US government debt grew from 52% of GDP when Obama took office in 2009 to 74% in 2014, with most of the growth in debt coming between 2009 and 2012. In 2010, Obama ordered the creation of the National Commission on Fiscal Responsibility and Reform (also known as the "Simpson-Bowles Commission") in order to find ways to reduce the country's debt. The commission ultimately released a report that called for a mix of spending cuts and tax increases. Notable recommendations of the report include a cut in military spending, a scaling back of tax deductions for mortgages and employer-provided health insurance, a raise of the Social Security retirement age, and reduced spending on Medicare, Medicaid, and federal employees. The proposal never received a vote in Congress, but it served as a template for future plans to reduce the national debt.

After taking control of the House in the 2010 elections, Congressional Republicans demanded spending cuts in return for raising the United States debt ceiling, the statutory limit on the total amount of debt that the Treasury Department can issue. The 2011 debt-ceiling crisis developed as Obama and Congressional Democrats demanded a "clean" debt-ceiling increase that did not include spending cuts. Though some Democrats argued that Obama could unilaterally raise the debt ceiling under the terms of the Fourteenth Amendment, Obama chose to negotiate with Congressional Republicans. Obama and Speaker of the House John Boehner attempted to negotiate a "grand bargain" to cut the deficit, reform entitlement programs, and re-write the tax code, but the negotiations eventually collapsed due to ideological differences between the Democratic and Republican leaders.  Congress instead passed the Budget Control Act of 2011, which raised the debt ceiling, provided for domestic and military spending cuts, and established the bipartisan Joint Select Committee on Deficit Reduction to propose further spending cuts.  As the Joint Select Committee on Deficit Reduction failed to reach an agreement on further cuts, domestic and military spending cuts known as the "sequester" took effect starting in 2013.

In October 2013, the government shut down for two weeks as Republicans and Democrats were unable to agree on a budget. House Republicans passed a budget that would defund Obamacare, but Senate Democrats refused to pass any budget that defunded Obamacare. Meanwhile, the country faced another debt ceiling crisis. Ultimately the two sides agreed to a continuing resolution that re-opened the government and suspended the debt ceiling. Months after passing the continuing resolution, Congress passed the Bipartisan Budget Act of 2013 and an omnibus spending bill to fund the government through 2014. In 2015, after John Boehner announced that he would resign as Speaker of the House, Congress passed a bill that set government spending targets and suspended the debt limit until after Obama left office.

 

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