The budget compromise bill that is meant to allow the U.S.
government to avoid higher tax rates and austere budget cuts has tax
rates as its central issue, with discussions about more spending cuts,
and the federal debt limit, put off until the coming weeks.
Now
that NPR and other organizations have had some time to look at the
compromise, we can list some of the proposed effects contained in the
Senate bill that
.
This list isn't exhaustive — we're including links to other analysis
below. But here's some of what the proposed deal would do:
You can review the nonpartisan Joint Committee On Taxation report of the Senate bill online,
.
For more of a boiled-down look at the costs and savings — and, we warn
you, all comparisons depend upon which set of projections you use for a
base level — the bipartisan Committee for a Responsible Federal Budget
Last night, the Senate voted on and approved a package to avert most components of the fiscal cliff, which we took
a preliminary review of last night. Today, however, there are many more details to review now that the legislation is available and
JCT has estimated the revenue effects.
In short, the package would permanently extend most of the
2001/2003/2010 tax cuts for incomes below $400,000/$450,000 while
letting the ordinary rate above that threshold rise to 39.6 percent and
the capital gains and dividends rates to 20 percent; it would increase
the estate tax rate from 35 to 40 percent; it would permanently patch
the AMT; and it would extend various “tax extenders” for 2012 and 2013.
On the spending side, the package would delay the sequester for two
months, enact a doc fix for a year, extend unemployment benefits for a
year, extend the farm bill for a year, and enact about $50 billion in
spending and revenue offsets to pay for the sequester delay and doc fix.
Based on more recent estimates, CRFB estimates that the entire
package would increase deficits by about $4.6 trillion over the next ten
years compared to current law projections (assuming everything expires
or activates as called for) but would decrease deficits and debt by
about $650 billion compared to more realistic current policy
projections. These revised estimates continue to show that debt would
remain on a upward path over the next ten years -- reaching 79 percent
of GDP by 2022 – if policymakers are unable to offset a repeal of the
sequester and Sustainable Growth Rate. That would be a slight
improvement over the
CRFB Realistic Projections,
which show debt rising to over 81 percent by 2022. Clearly, lawmakers
will need to go further, however, to put in place much more savings.
Below is our effort to roughly estimate the parameters of the deal.
Savings and Costs in the Fiscal Cliff Package
So what’s to like and dislike about the deal? Below we explain:
The Good
- Avoids most of the abrupt economic harm from the fiscal cliff by extending or delaying most provisions
- Raises $620 billion in gross revenues relative to current policy,
which would contribute to reducing the deficit compared to current
policy
- Sets the precedent that extending the sequester has to be paid for
and strengthens the precedent that the doc fix should be waived only
along with offsetting health provisions
- Leaves in place the ability for lawmakers to discuss further and
more meaningful deficit reduction measures in the coming weeks in order
to avoid sequestration in the beginning of March
The Bad
- Does not put in place the measures necessary to stabilize the debt as a share of the economy, let alone reduce it
- Does not include any serious entitlement reforms or set up a clear
process for considering such reforms even though rising health costs
remain our largest single fiscal challenge on Social Security is on a
road toward insolvency
- Does not include a process to enact pro-growth and revenue generating tax reforms
- Does not specifically offset the costs of the tax extenders or UI benefits, setting a bad precedent for future extensions
The Ugly
- Uses a tax timing gimmick to pay for part of the sequester.
Specifically, it raises $12 billion by allowing people to convert
certain retirement accounts to "Roth" accounts so that they can pay
their taxes now instead of later
- Cuts taxes by almost $4 trillion relative to current law
projections, with a permanent resolution to the 01/03/10 tax cuts and
AMT enacted on a deficit-financed basis even when deficit reduction
needs have not been met
- Represents an incredible failed opportunity by missing what Erskine
Bowles calls a “magic moment” to put in place a comprehensive plan that
would simultaneously avoid the fiscal cliff and more importantly enact
the spending cuts, tax reforms, and entitlement reforms necessary to
truly control rising debt
CRFB hopes that lawmakers will return the table very quickly in the
new year to enact savings sufficient in size and scope to solve the
country's debt problems.
http://crfb.org/blogs/good-bad-and-ugly-fiscal-cliff-package
Obama, Senate Republicans reach agreement on ‘fiscal cliff’
The Senate approved a bipartisan agreement early Tuesday morning to
let income taxes rise sharply for the first time in two decades,
fulfilling President Obama’s promise to raise taxes on the rich and
avoiding the worst effects of the “fiscal cliff.” The agreement,
brokered by Vice President Biden and Senate Minority Leader Mitch
McConnell (R-Ky.), passed 89 to 8 in a highly unusual New Year’s morning
vote. It now heads to the House, where leaders have not guaranteed
passage but top officials believe it could win passage in the next few
days.
The agreement primarily targets taxpayers who earn more than
$450,000 per year, raising their rates for wages and investment profits.
At the same time, the deal would protect more than 100 million
households earning less than $250,000 a year from income tax increases
scheduled to take effect Jan. 1.
The deal came together barely
three hours before the midnight deadline, after negotiators cleared two
final hurdles involving the estate tax and automatic spending cuts set
to affect the Pentagon and other federal agencies this week.
Republicans
gave in on the spending cuts, known as sequestration, by agreeing to a
two-month delay in budget reductions that would be paid for in part with
new tax revenue, a condition they had resisted. And the White House
made a major concession on the estate tax, agreeing to terms that would
permit estates worth as much as $15 million to escape taxation by the
end of the decade, Democrats said.
As the deadline for agreement
closed in on Monday, Biden rushed to the Capitol to brief Senate
Democrats on the deal, as Majority Leader Harry M. Reid (D-Nev.) laid
plans for a vote shortly after midnight, when taxes were set to rise for
virtually every American.
“I think we’ll get a very good vote
tonight,” a beaming Biden said as he emerged from the meeting with
Democrats after nearly two hours. “But happy new year and I’ll see you
all maybe tomorrow.”
The measure is now at the House, where
Speaker John A. Boehner (R-Ohio) pledged to bring it to a vote in the
coming days. “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,” Boehner
and other GOP leaders said in a written statement.
Senior aides
predicted the measure would pass the House with bipartisan support. But
Boehner’s decision to delay the vote meant the nation would tumble over
the cliff at least briefly.
In addition to dealing with the
fiscal crisis, the measure would extend federal farm policies through
September, averting an estimated doubling of milk prices. The deal also
nixed a set pay raise for members of Congress.
During a midday
event at the White House, Obama praised the emerging agreement even
though it would raise only about $600 billion over the next decade by
White House estimates — far less than the $1.6 trillion the president
had initially sought to extract from the nation’s richest households.
The
agreement “would further reduce the deficit by asking the wealthiest 2
percent of Americans to pay higher taxes for the first time in two
decades
. . . . So that’s progress,” Obama said.
“Keep
in mind that just last month, Republicans in Congress said they would
never agree to raise tax rates on the wealthiest Americans. Obviously,
the agreement that’s currently being discussed would raise those rates
and raise them permanently,” he said.
Some liberals were fuming
about the accord, complaining that Obama had been promising to increase
taxes on income over $250,000 a year — a much lower threshold — since he
ran for the White House in 2008.
Sen. Tom Harkin (D-Iowa) said:
“If you make $250,000 a year, you’re not middle class. You’re in the top
2 percent of income earners in America... No deal is better than a bad
deal, and this looks like a very bad deal the way this is shaping up.”
Other
Democrats were upset about the administration’s decision to maintain a
big exemption for inherited estates that allows those worth as much as
$5 million — $10 million for couples — to go untaxed.
Although
the White House won an agreement to raise the tax rates on larger
estates from 35 percent to 40 percent, Republicans successfully insisted
that the exemption should be adjusted annually for inflation, a
provision that would increase the exemption amount to $7.5 million for
individuals and $15 million for couples by 2020, said Rep. Chris Van
Hollen (Md.), the ranking Democrat on the House Budget Committee.
He called the final agreement a “sweetheart giveaway to the wealthiest 7,200 estates in the country.”
Republicans,
too, were anxious about the accord, especially in the House, which two
weeks ago rejected a proposal that would let taxes rise only on income
over $1 million a year. GOP lawmakers — who have not voted for a broad
tax increase since 1990 — were particularly incensed about the lack of
new spending cuts.
Rep. Patrick T. McHenry (N.C.), a staunch
conservative, said he was “gravely disappointed” and that House passage
of the measure was not guaranteed.
Under the agreement, the top
income tax rate would rise from 35 percent to 39.6 percent for married
couples earning more than $450,000 a year and single people earning more
than $400,000 a year. Those households also would pay higher rates on
investment profits, with rates on dividends and capital gains rising
from 15 percent to 20 percent.
Combined with a 3.8 percent
surcharge on investment income adopted as part of Obama’s health-care
initiative — a tax that also takes effect in January — the top rate on
investment income would rise to 23.8 percent for high-income households.
Nor
would taxpayers earning less than $450,000 entirely escape. The deal
would restore limits on personal exemptions and itemized deductions that
existed during the Clinton administration, with those benefits phasing
out for couples earning more than $250,000 a year and single people
earning more than $200,000.
That would keep Obama’s campaign
pledge to raise taxes on the top 2 percent of earners, essentially
households over $250,000. A Democrat familiar with the talks said the
president hopes to gain additional revenue from those households by
seeking to limit their tax breaks when the battle to reduce record
deficits continues in the new year.
By extending lower tax rates
for nearly all Americans, the deal would leave tax revenue about
$3.7 trillion lower than if the rates had reset at higher levels.
In
addition to permanently extending tax cuts enacted during the George W.
Bush administration for 114 million households, the deal calls for a
permanent fix for the alternative minimum tax, which would otherwise hit
nearly 30 million taxpayers for the first time when they file their
2012 returns.
It would extend for five years tax credits for
college tuition and the working poor, which were enacted as part of
Obama’s 2009 economic stimulus package, benefiting 25 million low-income
families.
Businesses would see a variety of popular tax breaks
extended through 2013, including a credit for research that primarily
benefits high-tech companies and an investment write-off that helps
manufacturers.
The long-term unemployed could count on receiving emergency benefits for another year, at a cost of about $30 billion.
And
doctors would be spared a 27 percent cut in Medicare reimbursements set
to take effect in January — although the $30 billion cost of that
extension would be covered by cutting other health-care programs.
The
last last piece of the puzzle to fall into place was the sequester,
which would be delayed until early March under an agreement to raise
$12 billion in new tax revenue and $12 billion in fresh savings from the
Pentagon and domestic programs.
Most of the deal had been locked down in a phone call between Biden and McConnell shortly before 1 a.m. Monday.
But
at 6:30 a.m., McConnell’s phone rang again. The White House was unhappy
with a tentative agreement for handling the sequester.
Those
cuts were adopted in the summer of 2011 after an epic battle over the
federal borrowing limit. At the time, Boehner insisted on identifying
spending cuts equal in size to the increase in the debt limit, which was
lifted by $2.1 trillion. About half the savings came in the form of
limits on agency budgets over the next 10 years. The rest — about
$1.2 trillion over the next decade, including interest savings — would
begin on Wednesday, striking every federal account evenly, across the
board.
With negotiators focused on how to prevent taxes from
rising, the sequester had been largely forgotten. Enter Defense
Secretary Leon E. Panetta and other senior Pentagon officials, who
mounted an intense campaign over the past two days to spare the
military, warning lawmakers that 800,000 civilian jobs were at risk.
Suddenly,
the sequester was back on the table. The White House at first sought a
two-year delay, which would have added more than $200 billion to budget
deficits. Republicans demanded new spending cuts and offered
$120 billion in options.
As the talks continued, Obama appeared at
the White House, demanding in a campaign-style event that any plan to
pay for the sequester must be “balanced.”
“That means the revenues
have to be part of the equation in turning off the sequester and
eliminating these automatic spending cuts,” he said.
The announcement angered Republicans; a top aide to McConnell tweeted that Obama had just “moved the goalpost.”
Soon after, McConnell appeared on the Senate floor to plead for the deal to move forward.
“Let’s
take what’s been agreed to and get moving. The president wants this,
members of Congress want to protect taxpayers and we can get it done
now,” McConnell said. “We must do this.”
Rosalind S. Helderman and Ed O’Keefe contributed to this report.
http://www.washingtonpost.com/business/fiscal-cliff/biden-mcconnell-continue-cliff-talks-as-clock-winds-down/2012/12/31/66c044e2-534d-11e2-8b9e-dd8773594efc_print.html
You like war. You like torture. You like Jesus. I don't know how
in the hell any of that is compatible, but no one ever accused you
haters of being over-committed to ideological consistency. You like
people who look like you or at least hate most of the things that you
hate. You hate everything else.
