We may not have to go over the fiscal cliff after all….according to reports, a tentative deal has been reached. The major points to the agreement are as follows(all quotes are from the Think Progress article, 2nd link above):
- Tax rate adjustments. The deal would extend all of the Bush tax cuts for incomes below $400,000 for individuals and $450,000 for families, while reinstating the Clinton-era 39.6 percent tax rate for income above those thresholds. It will also push the capital gains rate on investment income back to 20 percent for income above $400,000 for individuals and $450,000 for families. President Obama had asked for an extension of rates only for incomes below $250,000.
- Stimulus tax credits. Three tax credits expanded as part of the stimulus will be extended for one year as part of the compromise. The America’s Opportunity Tax Credit, Child Tax Credit, and Earned Income Tax Credit collectively benefit nearly 20 million Americans each year, and extending them was a priority for Obama and Democrats. Republicans allowed all three to expire in tax legislation earlier this year.
- Payroll tax cuts. The payroll tax cut would expire as part of this compromise. The payroll tax cut, which benefits all wage-earning workers, is the most damaging piece of the “fiscal cliff” according to the Congressional Budget Office. Republicans have opposed extending the payroll tax cut in the past; many Democrats opposed its extension over fears that it would undermine Social Security, which it helps fund.
- Unemployment insurance benefits. The federal unemployment insurance program would be extended for one year under this deal. Without an extension, more than 2 million would lose benefits at the beginning of 2013, while another million would lose them in the early part of the year.
- Estate tax. The estate tax was set to revert to its Clinton-era levels, where it was taxed at 55 percent after a $1 million exemption. This deal would set the exemption at $5 million and tax at a 40 percent rate after that — at a cost of $375 billion over 10 years compared to the Clinton level.
- Miscellaneous. The deal would also include a permanent fix to the Alternative Minimum Tax and a one-year “doc fix,” which would prevent cuts in provider payments through Medicare. It also extends certain corporate tax provisions for another year.
The key to this deal is that, by all appearances, they decided to split the tax half of the fiscal cliff from the spending half, opting to defer the sequestration debate for another day; in addition, it also appears they have put off debate on debt ceiling increases, which raises that possible specter down the road. But, and this is the but…if this is the agreement that gets America away from the fiscal edge, then it appears that while both sides bent some, Republicans bent further over to the center than did the Democrats in coming to this potential agreement.
According to reports, there might just be a deal in the works to avoid going off the fiscal cliff….the outlines of the current proposal are as follows:
- The threshold for the top tax rate would be set at $450k for couples instead of $250k. This would be a big Democratic concession; most Dems’ wanted to keep the threshold for the top rate at a quarter-million while Republicans were looking for $550k.
- Capital gains & dividend tax rates would increase to 20 percent on households over a quarter-million, with an equal reduction in household deductions. The first concession came at a price for Republicans, though: in exchange for the higher individual income threshold, they gave up a lower investment tax rate in turn. It’s still a tax cut, though, as those affected will see upwards of 35-40% in tax savings over current rates.
- In addition to #2, the Alternative Minimum Tax would be raised to protect middle-class families long-term. No information on how this would work, but this is a big thing; at present, more and more people fall under the AMT rules instead of the standard tax rules, so anything that shelters them from the AMT is a good thing.
- In terms of spending, both sides would agree to delay the sequester until 2015. Costing $200 billion total, it would hurt discretionary spending but would avoid defense cuts that Republicans were cringing at.
- In exchange for #4, unemployment benefits would be extended for one additional year and adjustments to Medicare(i.e. the Medicare doc fix) would be postponed until a later date. While Republicans want offsetting cuts to the UEI part, the fact that they’re even willing to allow UEI extensions(considering their past intransigence on the subject) is a major give on their end.
For what it’s worth, it’s not the prettiest bargain I’ve seen…but it does seem workable. The only question is whether they can get it to avoid damaging the economy more than it has been at present.
NBC First Read: Cliffs Notes – Five Things To Watch At Today’s White House Meeting
…and those five things are:
- The tone of the negotiators. One way to tell what might happen in regards to the fiscal cliff is how those involved talk afterwards; if Boehner, Reid, Cantor, Pelosi and others appear jointly to speak about what transpired at the White House today, that could bode well for whatever decision they make. If, on the other hand, they appear separately with the press, that’s not a good sign.
- The process of the matter. In recent days, there’s been calls for the Senate to send their own fiscal cliff package, which they’ve already voted on, over to the House for them to vote on. Only one problem…under the Constitution, all tax & appropriations bills must begin in the lower chamber(i.e. the House); normally, this would be the end of any Senate package except that there is a pathway they can use, which is this: the Senate could take up any bill already passed by the House that is currently on the Senate calendar, offer a substitute amendment to said bill(assumption here is that the fiscal cliff package would be the substitute), pass it in lieu of the original bill, get unanimous consent to move forward on the amended bill, pass amended bill and send back to the House with the amendment therein. If fiscal cliff negotiators come out of their meeting today with a clear path on how to proceed, that could spell good tidings.
- Numbers, numbers, numbers. One of the major stumbling blocks to any fiscal cliff package has been where the threshold for the top tax rates should be set at; Republicans want it to remain at 35% regardless of income while Democrats want to, in principle, raise it back to the 39.6% rate, set during the Clinton Administration. One possible solution here might be a compromise: raise the rate to 37 or 38 percent with an income limit of 250-400 thousand dollars income. In addition, another sticking point has been the amount of spending cuts that will have to be made in conjunction with revenue increases: Republicans are calling for $800 billion or so in revenue-matched cuts while Democrats are calling for roughly $1 trillion in revenue-matched cuts, down from their original amount of $1.2-$1.4 trillion. Here, another compromise might be a sign of progress on fiscal cliff discussions; the question, of course, is where the lines are eventually drawn.
- Screw this; just kick the can down the road again. This could be the deal in and of itself; just pass something that delays its’ until a later time and date, which is what got us in this predicament in the first place 18 months ago. The very reason America’s staring at a fiscal cliff that we’ll likely go over in a few days was due to the summer 2011 debt-ceiling talks, when America’s credit rating was degraded due to Congress not getting its’ act together when Washington smashed into the nation’s debt ceiling; God only knows what the markets might do if Washington engages in another can-kicking routine now…
- Watch the base, everyone. One of the reasons politics in Washington have become so polarized is the fact that leaders have to be careful not to anger their respective parties’ bases(liberals & progressives on the Democratic side, conservatives on the Rpeublican side); if there appears to be a lot of saber-rattling anger from either of these groups, there might not be a fiscal cliff deal that would pass.
In the final analysis, any fiscal cliff package that is agreed to would need a bipartisan push to pass in either house of Congress but there are plenty of minefields that the respective negotiators will have to navigate to get any sort of package passed…meanwhile, the rest of us out in the hustings will just have to simply wait and bide our time.
Oh, the inhumanity….the sheer inhumanity…..who are we kidding? The House Republican plan was never going to pass the Senate; Harry Reid had already said as much. Boehner, as befuddled an idiot as any man can be, couldn’t even rally his own party.
Guess this means we’re heading over the fiscal cliff after all…I can’t wait to see the public focus their anger & enmity towards the GOP on this one.