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3 Key Concessions Shape Tentative Fiscal Cliff Deal

3 Key Concessions Shape Tentative Fiscal Cliff Deal

Democrats and Republicans appear to be close to a deal to avert at least part of the so-called fiscal cliff, but the bill will still have to get through Congress.

“It appears that agreement to prevent this New Year’s tax hike is within sight,” said President Barack Obama in a brief address Monday afternoon. “But it’s not done.”

The deal being bandied about would entail significant concessions from both Democrats and Republicans in order to avert significant tax hikes on all Americans due to take effect at midnight. Agreement has still not been reached on how to avoid spending cuts scheduled for the same time.

Here’s a quick look at what both sides may be giving up to get a deal — and the potential sticking points that remain.

1. Income Tax Rate Hikes Start at $400,000, not $250,000

The most significant Democratic concession is an agreement to raise the dollar amount at which tax rate hikes kick in. Obama had pressed for tax rate increases to begin on income over $250,000, while Republicans have been cool to any increase in tax rates on anyone. The deal as it stands would increase rates on income over $400,000 for individuals, or $450,000 for couples.

This is a significant giveback from Obama, who campaigned on a tax increase on income over $250,000. Still, the measure would ensure that some taxes went up for the wealthiest Americans. The measure would limit deductions for the affluent beginning at $250,000 ($300,000 for couples), and would also raise capital gains taxes on income over $400,000, from 15 percent to 20 percent.

Nevertheless, many on the left are expressing disappointment with the agreement, preferring a strategy of letting tax cuts expire, and then passing a new tax cut bill early in 2013. Sen. Tom Harkin, D-Ia., told the New York Times that the agreement “looks like a very bad deal the way this is shaping up.”

2. Increases in Estate Tax for Wealthiest

Both sides made concessions with regard to the estate tax. Long a GOP bugaboo, the tax would actually rise under the agreement, to 40 percent on inheritances larger that $5 million. While Democrats had hoped for a higher tax on lower-valued inheritances, it’s still a significant concession by GOPers, given that they have long pushed for an outright elimination of the estate tax.

It bears noting that allowing the tax cuts to expire would raise the estate tax to 55 percent, causing some Democrats to complain that doing nothing would allow them to basically force the GOP-controlled House to agree to Democratic demands.

3. Five-Year Extension of Tax Cuts for Poor, Students

Republicans gave some on tax breaks for students and the working poor, agreeing to a five-year extension of child credits for workers who do not earn enough to pay taxes, tuition credits, and an expansion of the Earned Income Tax Credit. The credits were passed as part of the 2009 stimulus package, although they were not envisioned as permanent when first passed.

The GOP will also agree to an extension of green energy tax credits, and a one-year extension of expanded federal unemployment benefits.

What Hasn’t Been Decided

While the two sides are close to a deal on taxes, spending is more contentious. The sides appear to be close to a deal to delay payment cuts to Medicare providers for one year, but Democrats and Republicans disagree on what to do on other spending cuts. Democrats support a one-year delay in the sequestration, while Republicans have so far supported only a three-month extension. The two sides also have not come to an agreement on raising the debt ceiling, which was reached on Monday.

A few things do appear to be off the table, at least for now. Cuts to Medicare and Social Security are not being discussed as part of Monday’s deal. Democrats had complained about a proposal to switch Social Security cost of living adjustments to “chained CPI,” which would slightly reduce the growth of the program. Cuts to Medicare also appear unlikely.

The agreement is certain to draw complaints from both Democratic and Republican partisans. For Democrats, the measure would represent a capitulation, giving up too much to a Republican Party that’s clearly on the ropes. For Republicans, supporting the measure means agreeing to raise taxes — something Republicans have outright refused to do under any circumstances since the 1994 Republican Revolution.

Still, the consequences of inaction are also severe — a likely double-dip recession, just as the economy was starting to recover. That may force both sides to agree to the measure before midnight, though not much sooner. Obama said Monday that he expected Congress to wait until the last minute to pass legislation.

“If there’s even one second left before you do what you have to do, they will use that last second,” he said.

UPDATE (Monday evening): It looked like a deal was close, and perhaps it still is, but for now, the deal to avoid the fiscal cliff is dead. The Republican leadership of the House of Representatives has said there will be no vote today, and they have not indicated whether or when a vote will be held.

It’s pretty clear that the hold-up revolves around the spending cuts mandated by the sequester. Republicans and Democrats have disagreed about how long to delay cuts due to take effect at midnight; Republicans have proposed delaying cuts for three months, while Democrats have advocated pushing cuts back for as long as a year.

It is unclear when or if a deal will be reached. The 112th Congress adjourns on January 2, and while the leadership teams in both the House and Senate will remain the same, the bodies will become somewhat more Democratic, What that will mean for a potential deal is anyone’s guess.

What is clear is that we are going over the fiscal cliff, at least for a while. The good news is that in the short term, that isn’t a disaster. The longer it goes on, however, the more damage the cliff will cause.

UPDATE #2 (Monday evening): Republicans and Democrats may — with an emphasis on may — have reached a deal after all. The deal reportedly holds to the basic framework discussed earlier in this piece.

While a number of news organizations are announcing the deal is “official,” it is unclear when a vote will take place, or how many votes each party will need to guarantee passage.

 

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68 comments

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12:06PM PST on Jan 9, 2013

EVERY President had vacations that we paid for. THey are FORCED to fly in the presidential plane they are forced to have secret service with them. I am sure the vacation part Obama paid for himself. McConnel and Biden hammers out the bill. THey didn't cave in. There are realities of be dealt with regardless of ideologies.

5:59AM PST on Jan 6, 2013

This was NOT a compromise. It was a cave by the Republicans! Obama has only just begun to raise taxes too. He said as much when he announced the deal before jumping back on air force one and winging back to Hawaii, to his million dollar vacation that we are paying for! And if you think he will be satisfied by taxing the "rich" you better think again! We will ALL be paying a lot more in taxes when he gets finished!

2:03PM PST on Jan 2, 2013

President Obama recorded a video to discuss the agreement and what it means. http://OFA.BO/UpngYM

12:41PM PST on Jan 2, 2013

Screw this crap. Not one single politician in Washington gives a crap about a single one of "us". This fishwife nagging between these 2 parties has gone beyond my last good nerve. If you piss off the "haves" they can turn their power around and zap butts. I've always hated paying taxes but have always done so because I love this country and realize it takes a village. Money seems to make people go evil.

11:52AM PST on Jan 2, 2013

They can't give a cost of living to our military or social security but they got their raises. What's wrong with this picture?

11:44AM PST on Jan 2, 2013

Recall all Republicans!

5:32AM PST on Jan 2, 2013

It ain't over yet.

5:10AM PST on Jan 2, 2013

I hope the deal failed, and the Bush tax cuts all expired at midnight of New Year's Eve. Then we can start over at the beginning of 2013.

2:51AM PST on Jan 2, 2013

interesting

10:50PM PST on Jan 1, 2013

My opptimism is hoping for a Democrat Gop majority with the new house.

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