A deal to resolve the so-called “fiscal cliff” has not been announced, with only 10 hours to go until tonight’s deadline.
With the caveat that no reporter is privy to the details of the offers being swapped, here is the deal that seemed to be emerging: Democrats would get an extension of unemployment benefits for 2.1 million people; they’d patch the alternative minimum tax for a year to protect the middle class from sharp tax hikes; and they’d implement a “doc fix” to ensure that Medicare reimbursement rates to doctors don’t fall precipitously and limit patients’ access to medical care. Republicans would get to preserve Bush-era income tax rates for households making up to $400,000 (rather than the $250,000 limit Democrats prefer). They’d also get a lower tax rate and a much higher threshold for inheritance taxes (set to revert to 55 percent on estates of more than $1 million on Tuesday). And significantly, Republicans would hold onto their greatest point of leverage in upcoming negotiations over entitlement cuts, because the deal wouldn’t raise the debt limit.
Here’s what’s important about everything Democrats would get: It’s temporary; everything expires (presumably) within a year. Here’s what’s important about what Republicans would get: it’s permanent. The tax rates won’t expire.
Yesterday the Senate GOP caucus gave up on a demand to cut Social Security benefits (via the so-called “chained CPI”) as part of a deal.
“CPI has to be off the table because it’s not a winning argument to say benefits for seniors versus tax breaks for rich people,” said Sen. John McCain (R-Ariz.). “We need to take CPI off the table — that’s not part of the negotiations — because we can’t win an argument that has Social Security for seniors versus taxes for the rich.”
Even without “chained CPI,” any deal that makes the Bush-Obama Tax Cuts For The Rich permanent is a bad deal. Along with the continuing economic slump, tax cuts and the Pentagon budget are the primarily drivers of deficits. Any credible deficit reduction plan must include major economic stimulus, expiration of ALL the tax cuts for the rich, and a significant reduction in military spending.
UPDATE: Tonight, MSNBC and CNN are reporting that President Obama has abandoned his campaign promises from 2008 and 2012, and agreed to make the Bush-Obama Tax Cuts For The Rich permanent for the first $450,000 of income. That nets an estimated $600 billion in revenue over 10 years, not enough to make a dent in deficits. The AMT is fixed permanently. If you are lucky enough to inherit up to $10 million, it’s all tax free. Capital gains will be taxed at 20 percent.
Ordinary working Americans will lose the payroll tax holiday, reducing the take-home pay of the median household by $1,000. Federal unemployment benefits will be extended for one year. Earned Income Tax Credit extended for five years.
The deal sets up three more fake crises early in 2013: (1) over the debt ceiling (which the Treasury has already hit), (2) over sequestration (in two months), and (3) when the continuing resolution expires on March 27 (enabling the GOP to threaten a government shutdown). Worst of all, once again the Republicans get away with hostage-taking tactics – which will encourage them to do it again, threatening to wreck the economy unless Dems cave to their demands.
UPDATE: At 11:45 pm Utah time, the Senate is voting. Senator Tom Harkin (D-IA) delivered an eloquent speech on C-SPAN2 denouncing trickle-down theory, and the idea that $400,000 a year is somehow “middle class” when it represents the top 1 percent. He also pointed out that tax breaks for the rich are made permanent in the bill, while true middle class items like the Earned Income Tax Credit, child tax credit, tuition tax credit and unemployment benefits are only temporary. The vote was 89-8 in favor of the deal.
UPDATE: Paul Krugman:
Anyone looking at these negotiations, especially given Obama’s previous behavior, can’t help but reach one main conclusion: whenever the president says that there’s an issue on which he absolutely, positively won’t give ground, you can count on him, you know, giving way — and soon, too. The idea that you should only make promises and threats you intend to make good on doesn’t seem to be one that this particular president can grasp.
And that means that Republicans will go right from this negotiation into the debt ceiling in the firm belief that Obama can be rolled.
UPDATE: Eric Cantor Really Hates the Senate’s Cliff Deal. There’s a chance that Speaker Boehner won’t keep his promise to let the House of Representatives vote on the Senate-passed bill because House Majority Leader Eric Cantor, the No. 2 Republican in the House, is against it.
UPDATE: Tax cuts for the rich have been made permanent, mostly with Democratic votes. The entire Utah House delegation voted no.
[T]he House passed the measure Tuesday evening by a vote of 257-167, with 85 Republican votes. 151 Republicans, including House Majority Leader Eric Cantor (R-VA) and Majority Whip Kevin McCarthy (R-CA), and 16 Democrats voted against the bill.