Here's The Deal On The Fiscal Cliff Deal
Rick Ungar
Official portrait of United States House Speaker (R-Ohio). (Photo credit: Wikipedia)
While the last minute and intensive negotiations led to success in the upper chamber of Congress, the battle is far from over as it remains to be seen whether the House of Representatives will approve the bi-partisan agreement or, for that matter, whether the bill will be permitted to even come to the House floor for a vote.
The agreement means an increased tax bill for married couples earning more than $450,000—$400,000 for single filers—as the current top rate of 35 percent rises to 39.6 percent. Americans earning at this level will also experience a change in the taxes they pay on dividends and capital gains, with these rates increasing from 15 percent to 20 percent—an amount far less than the 40 percent originally sought by the Administration.
The tax measures have angered both liberals —who strongly believe the President should have held his ground on the promise to apply the increases to those earning in excess of $250,000—and conservatives who object to any tax increase whatsoever with equal fervor.
However, not all taxpayers earning less than $450,000 come away unscathed by the deal as the agreement returns to the Clinton era limits on personal exemptions and itemized deductions for couples earning more than $250,000 and single filers earning in excess of $200,000.
As for estate taxes, the rates will rise from 35 percent to 40 percent for estates valued at over $5 million dollars, however the Republicans did succeed in building in a provision which allows the amount of the exemption (currently five million dollars) to be indexed to the rate of inflation.
But it isn’t all just about taxes as the Senate bill addresses a number of additional and parallel issues that fed into the fiscal cliff fiasco—including passage of a nine month extension of the farm bill, temporarily removing the threat of a radical rise in the price of milk.
Here’s a roundup—
- Unemployment benefits are extended for an additional year benefiting approximately 2 million out of work Americans.
- Tax credits for college tuition, created by the 2009 stimulus package, are extended for five year, benefiting some 25 million low income families.
- The “doctor fix” is included meaning that Medicare providers will not face a serious cut in pay.
- The Alternative Minimum Tax problem is permanently fixed removing a potential tax danger for middle class families.
- A number of existing business tax benefits will remain in place for another year, including renewable energy tax credit which is extended for an additional year.
- The $900 per year salary raise recently signed into existence by President Obama for members of Congress is revoked.
Also not included is a rise in the debt ceiling. The nation actually reached its debt ceiling yesterday and, while the Treasury Department says that it can continue to pay outstanding debt obligations and other bills for another two months, there will need to be an all new debt ceiling battle in Congress beginning in February to allow the nation to continuing making payments on its debt obligations.
Which brings us to the sequester—the harsh cuts to the federal budget scheduled to go into effect today. Per the agreement, the cuts have been delayed for two months, with the obvious intent of taking up these cuts as a part of our next fiscal fiasco —the debt ceiling debates coming in February to a Congress near you.
If you’re into picking the winners and the losers, you’ll find that your choices will be guided by those elements of the deal that strike closest to home.
Conservatives, already unhappy with tax increases, are likely to be further displeased that the Senate agreement fails to actually deal with spending—something Minority Leader Mitch McConnell acknowledged yesterday when asking GOP Senators to vote for the bill despite its failure to address spending cuts, noting that the tax portion of the fiscal cliff was the most important component of the deal.
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Of course, McConnell knows full well that February is just days away and that he will get another large bite at the spending apple when the battle moves on to the debt ceiling where Congressional Republicans expect to hold better cards than they possessed in the current debate.
Liberals, as noted, are unhappy with lowering the threshold for the income tax increase and are additionally rankled by the estate tax provisions that maintain the $5 million exemption with the potential for the exemption to rise to more than $15 million by 2020. Rep. Chris Van Hollen., ranking Democrat on the House Budget Committee, called the deal a “sweetheart give away to the wealthiest 7,200 estates in the country.”
Centrists will likely view the anger on both sides as an indication that a fair and reasonable compromise has been accomplished.
But will any of this matter?
Today, the bill will face the vagaries of the United States House of Representatives where, as we have learned, anything can happen.
To get an early sense of where this is all going, you will want to watch for a fundamental call to be made by Speaker John Boehner based on the result of a GOP caucus vote on the Senate originated agreement.
If Boehner sticks with his requirement that a majority of House GOP conference must approve the legislation before he agrees to bring the measure to a full vote of the House, the deal could be in trouble. Considering that Boehner could not accomplish enough votes in his caucus to bring his “Plan B” —which called for tax increases for those earning more than a million a year—to the House floor, there is good reason to wonder whether he can get enough House Republicans to agree to a deal which lowers the threshold to $450,000.
If the GOP House caucus does not approve the legislation, Boehner will then face a decision to bring the bill to a vote of the full House, despite the determination of his caucus, where the agreement would stand a good chance of passing with most Democrats and a few Republicans voting ‘yes’. However, should Boehner allow the full House vote to go forward, despite his inability to get a majority of Republicans to support the legislation, his sparing the nation from a fall from the cliff could come at the cost of his job as Speaker.
Another likely result of the process to play out in the House would find the GOP caucus amending the Senate bill and sending it back to the Senate to approve House originated changes. If this happens, it is anyone’s guess as to whether Senate Democrats would be able to live with any such proposed changes made by the GOP controlled House.
It’s going to be an interesting New Years Day.
Contact Rick at thepolicypage@gmail.com and follow me on Twitter and Facebook
This article is available online at:
http://www.forbes.com/sites/rickungar/2013/01/01/heres-the-deal-on-the-fiscal-cliff-deal/
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