Tentative Deal Reached On Fiscal Cliff

[General Mung Beans]

http://www.nytimes.com/2013/01/01/us/po ... wanted=all

Tentative Deal Is Reached to Raise Taxes on the Wealthy
By JONATHAN WEISMAN
Published: December 31, 2012 853 Comments


WASHINGTON — Furious last-minute negotiations between the White House and the Senate Republican leadership on Monday secured a tentative agreement to allow tax rates to rise on affluent Americans, but the measure was not going to pass in time for Congress to meet its Dec. 31 deadline for averting automatic tax increases and spending cuts deemed a threat to the economy.

While some senators pushed for a quick vote on legislation to avoid the so-called fiscal cliff, the House was not expected to consider any deal until Tuesday at the earliest, meaning that a combination of tax increases and spending cuts would go into effect in the first days of 2013. If Congress acts quickly and sends a deal to President Obama, the economic impact could still be very limited.

Under the agreement, tax rates would jump to 39.6 percent from 35 percent for individual incomes over $400,000 and couples over $450,000, while tax deductions and credits would start phasing out on incomes as low as $200,000, a clear win for President Obama, who campaigned on higher taxes for the wealthy.

“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,” Mr. Obama crowed at a hastily arranged news briefing, with middle-income onlookers cheering behind him.

In a development that pushed lawmakers closer to a resolution, Senate Republicans said negotiators also agreed to put off $110 billion in across-the-board cuts to military and domestic programs for two months while broader deficit reduction talks continue. Those cuts begin to go into force on Wednesday Jan. 2, and that deadline too might be missed before Congress approves the deal.

The nature of the deal ensured that the running war between the White House and Congressional Republicans on spending and taxes will continue at least until the spring. Treasury Secretary Timothy F. Geithner formally notified Congress that the government reached its statutory borrowing limit on New Year’s Eve. Through some creative accounting tricks, the Treasury Department can put off action for perhaps two months, but Congress must act to keep the government from defaulting just when the “pause” on pending cuts is up. Then in late March, a temporary law financing the government expires.

And the new deal does nothing to address the big issues that President Obama and Speaker John A. Boehner hoped to deal with in their failed “grand bargain” talks two weeks ago: booming entitlement spending and a tax code so complex few defend it anymore.

Though the tentative deal had a chance of success, it landed with a thud on Capitol Hill. Republicans accused the White House of “moving the goal posts” by demanding still more tax increases to help shut off across-the-board spending cuts beyond the two-month pause. Democrats were incredulous that the president had ultimately agreed to around $600 billion in new tax revenue over 10 years when even Mr. Boehner had promised $800 billion. But the White House said it had also won concessions on unemployment insurance and the inheritance tax among other wins.

Still, Democrats openly worried that if Mr. Obama could not drive a harder bargain when he holds most of the cards, he will give up still more Democratic priorities in the coming weeks, when hard deadlines will raise the prospects of a government default first, then a government shutdown. In both instances, conservative Republicans are more willing to breach the deadlines than in this case, when conservatives cringed at the prospects of huge tax increases.

“I just don’t think Obama’s negotiated very well,” said Senator Tom Harkin, Democrat of Iowa.

But as night fell over Washington on New Year’s Eve, senators seemed worn down and resigned. “Everybody by this time is angry, but sooner or later this has to be resolved,” said Senator Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee.

Even House Republicans signaled that enough of them, in combination with Democrats, could most likely pass it, just weeks after Republicans shot down Mr. Boehner’s proposal to raise taxes only on incomes over $1 million.

“I don’t want to say where I am until I read the legislation but it is certainly better than the alternative,” said Representative Charlie Dent, Republican of Pennsylvania.

With a deal agonizingly close, official Washington still prepared for the worst. The Defense Department prepared to notify all 800,000 of its civilian employees that some of them could be forced into unpaid leave without a deal on military cuts. The Internal Revenue Service issued guidance to employers to increase withholding from paychecks beginning Tuesday to match new tax rates at every income level.

“No deal is the worse deal,” said Senator Joseph I. Lieberman, independent of Connecticut, rejecting the assertions of liberal colleagues that no deal would be better than what they would see as a bad deal.

Even after dark, however, new wrenches were gumming up the machinery. Democrats put out late word that Republicans wanted the threshold at which inherited estates would be taxed to be indexed to inflation, a nonstarter for them. Republicans said they needed to see what cuts would pay for the $24 billion needed to put off across-the-board spending cuts.

But with Republicans and Democrats grumbling, it was clear that a deal hashed out through intense talks between Vice President Joseph R. Biden Jr. and Senator Mitch McConnell of Kentucky, the Republican leader, had given both sides provisions to cheer and provisions to jeer.

Under the deal, income taxes would rise to 39.6 percent from 35 percent on income over $400,000 for single people and $450,000 for couples. Above those income levels, dividends and capital gains tax rates would also rise, to 20 percent from 15 percent.

An official familiar with the negotiations stressed that taxes would rise in some sense on the top 2 percent of earners, as Mr. Obama has wanted since his first presidential campaign in 2008. That is because the deal would reinstate provisions to tax law, ended by the Bush tax cuts of 2001, that phase out personal exemptions and deductions for the affluent. Those phaseouts, under the agreement, would begin at $250,000 for single people and $300,000 for couples.

The estate tax would also rise, but considerably less than Democrats had wanted. The value of estates over $5 million would be taxed at 40 percent, up from the current 35 percent. Democrats had wanted a 45 percent rate on inheritances larger than $3.5 million.

Under the deal, the new rates on income, investment and inheritances would be permanent, as would a provision to stop the alternative minimum tax from hitting middle-class families.

Mr. Obama and the Democrats would be granted a five-year extension of tax cuts they won in the 2009 stimulus law for middle-class and working-poor taxpayers. Those include a child credit that goes out as a check to workers who do not earn enough money to pay income taxes, an expanded earned income credit and a refundable credit for tuition.

Democrats also secured a full year’s extension of unemployment insurance without strings attached and without offsetting spending cuts, a $30 billion cost.

Jennifer Steinhauer and Robert Pear contributed reporting.

Considering the circumstances, the deal isn't too bad I suppose. Hopefully the House can cobble together some sort of majority to pass this before we go too far over the Fiscal Cliff.

[Pelranius]

Considering how the House Tea Party poured cold water over Boehner's "Plan B" just a few weeks ago, I'm not very optimistic.

[General Mung Beans]

Considering how the House Tea Party poured cold water over Boehner's "Plan B" just a few weeks ago, I'm not very optimistic.

That only had the support of House Republicans. If Boehner can get at least a large chunk of the Republicans in the House to vote for this along with most of the Democrats, it can be enough.

[bobalot]

They really should accept, but I suspect a good majority will of Republicans will flat out refuse. I wonder (if this deal manages to pass with the support of moderate Republicans) if a Republican party civil war might break out over this?

If they reject this proposal, all the Democrats have to do is allow all rates to go up and then simply pass a bill cutting rates for those on less than $250,000 along with extension of unemployment benefits.

If the House Republicans were looking at this rationally, they can either:
1) Accept this deal and give Obama and the Democrats a small victory.
2) Reject this deal and then later accept a worse deal (for them) and give Obama and the Democrats a big victory.

Rationally is the key word here.

[Iron Bridge]

Does this deal include any spending cuts at all, especially as some of the "tax cuts" even seem to be welfare payments?

The recession era spending high becoming permanent would cause lasting damage to the US's institutions, and ultimately cannot be plugged by taxing only small number of people with really high salaries.

[Pelranius]

Considering how the House Tea Party poured cold water over Boehner's "Plan B" just a few weeks ago, I'm not very optimistic.

That only had the support of House Republicans. If Boehner can get at least a large chunk of the Republicans in the House to vote for this along with most of the Democrats, it can be enough.

Doing that could possibly (though not probably, I think) cost Boehner the speakership, if Eric Cantor smells blood in the water and tries to unseat him. Boehner might find that it's just safer to sit on the bill or delay it until January 3rd.

Alternately, House Democrats could abstain from voting or just vote present (not sure if you can do that in the House), but IMO, that's far less likely.

[aerius]

CBO estimates & breakdown

$330 billion in additional spending over 10 years, $3.6 trillion of lost revenue over the same time period compared to the baseline scenario where the tax breaks expire and spending gets automatically cut. In short, business as usual and no attempt at an actual fix.

[Irbis]

I bet you guys 10 Euro deal as presented here will fail without more modifications.

[Flagg]

And Cuntor and the Tea loonies are holding up the House bill.

[Broomstick]

I'm sitting here wondering if I'm too poor to really be affected by all this. I don't think I'm paying enough to pay taxes or to be affected by expiring cuts.

On the downside, long term this probably will affect me one way or another. What suckitude.

[Mr Bean]

I'm sitting here wondering if I'm too poor to really be affected by all this. I don't think I'm paying enough to pay taxes or to be affected by expiring cuts.

On the downside, long term this probably will affect me one way or another. What suckitude.

Unemployment is part of this so yes the poor will get hit and hard. Of course if Obama had ever bothered to argue for four year extension rather than year to year he'd not be int his boat every year. In fact since it's always a year or less he's been in this boat four times now.

[Zaune]

Unemployment is part of this so yes the poor will get hit and hard. Of course if Obama had ever bothered to argue for four year extension rather than year to year he'd not be int his boat every year. In fact since it's always a year or less he's been in this boat four times now.

Do you really think he'd have got anywhere if he'd started with that as a negotiating position?

And you know what? Part of me hopes they don't reach a deal this time. At least then the catastrophe will have happened and the US can start picking up the pieces, rather than an endless string of frantic emergency patch-up jobs that merely preserve the status quo a little longer.

[Dalton]

The House tried to amend the Senate bill but didn't have enough votes, nor do they have enough to kill it. I hear they may pass the bill at 11:45 tonight.

[Flagg]

The House tried to amend the Senate bill but didn't have enough votes, nor do they have enough to kill it. I hear they may pass the bill at 11:45 tonight.

Honestly, I'll believe it when I see it. I hope it happens, but I wouldn't put it past the Tea Lunatics to hold it up.

[Questor]

The interesting part is that there seems to have been a suspension of the Hastert Rule. I wonder what Pelosi had to trade to get that?

If I had to guess, they were horse trading for the democratic caucuses votes for speaker. Cantor wants the job, and if he got a three way vote going, hilarity could have ensued (a legitimate path to Pelosi being speaker in a Republican majority house).

[Highlord Laan]

I'm sitting here wondering if I'm too poor to really be affected by all this. I don't think I'm paying enough to pay taxes or to be affected by expiring cuts.

On the downside, long term this probably will affect me one way or another. What suckitude.

Don't you just love getting fucked over by rich old scum so they can continue their worthless lives in politics? I know I do. God bless america.

It really is too bad that none of these air-thieving shitbags will ever face anything that could even be confused for consequences for their actions, and will in fact be re-elected by their base [primate] followers. Truly, I wish I could keep my job were my performance as bad as theirs.

[Broomstick]

I'm sitting here wondering if I'm too poor to really be affected by all this. I don't think I'm paying enough to pay taxes or to be affected by expiring cuts.

On the downside, long term this probably will affect me one way or another. What suckitude.

Unemployment is part of this so yes the poor will get hit and hard.

I'm working poor, not unemployed. So I don't have to worry (personally) about the end of unemployment benefits (at least not at this time). Lots of poor folks in the US work full time, it's just that they work full time for suck wages.

[Will]

Considering the circumstances, the deal isn't too bad I suppose. Hopefully the House can cobble together some sort of majority to pass this before we go too far over the Fiscal Cliff.

Summed up in a single sentence: Obama and his rich Democrat and Republican cronies decide to throw the rest of the country over a cliff.

Don't quote an entire article and post in order to throw in a spammy one-liner. - SCRawl

[Mr Bean]

Do you really think he'd have got anywhere if he'd started with that as a negotiating position?

Yes because that's negotiation, you don't start with a compromise, if I want to sell a car for 1000 and you want to buy it for 800 I don't start at 800 I start at 1200 and let you work me down to 1000 so you feel like you got a deal and I have room to give things up.

Obama always starts with a compromise even if House Dems sometimes don't, but then remember the negotiation that set the tone of the Obama administration, the first budget fight where the Democratic starting position was 0 dollars in cuts, the Republican starting position was 30 billion in cuts and at the end of the day... they cut 37 billion from the budget.

That's Obama negotiation at it's stereotypical "bipartisanship" best

Thank Xenu the Tea Party folks never budget or Social Security would have been raised to 70 by now.

[weemadando]

On that topic though, retirement benefits globally SHOULD be raised to 70 or even 80 to better represent the intent of the system. When they were introduced the median life expectancy was LOWER than the age threshold to access them. Now 100 years later, life expectancy is 15-20 years (depending on country) past the point of being eligible. So instead of a minority reaching the age of eligibility and likely dying soon after, it's become a majority having access to this (contingent on other criteria) for decades.

And I'm saying this as very much pro-welfare state person. The problem is any politician in any country that proposes such a change will never ever win reelection.

[Mr Bean]

On that topic though, retirement benefits globally SHOULD be raised to 70 or even 80 to better represent the intent of the system. When they were introduced the median life expectancy was LOWER than the age threshold to access them. Now 100 years later, life expectancy is 15-20 years (depending on country) past the point of being eligible. So instead of a minority reaching the age of eligibility and likely dying soon after, it's become a majority having access to this (contingent on other criteria) for decades.

There is two things wrong with that statement, one is that the years of life are equivalent between the previous 50s-60s and now 60s-80s and second that the America system did not take this into account to begin with.

First even with all our medical science by the time most people hit 60 their bodies are starting to physical break down, lots of professions if you do them your entire life (Everything from construction and coal mining to law enforcement) will put you in your sixties as a broken down wreak of stacking issues. The simple fact is we do live longer but we sure as hell have yet to live better for hundreds of professions. Yes if your job is "attorney" then you can keep working right until the day comes to bury you but there are many careers which because of the nature of the work don't live you in the shape to run five kilometer runs every weekend on your eighty birthday. The reason why retirement benefits are required is because you can't physically work anymore at the job where you worked for over forty years or your combination of jobs. It's not sane to ask you after so much time to work another two decades before the government gives to shits about you.

Second the America Social Security program was built with this issue in mind, there are very long term slow age increases with the assumption that some day we will get heather and live longer. The general idea however is as long as our population is expanding we will always have the funds available, but then we knew this situation might arise. Which is why SS was designed to always run a surplus to cover us during exactly the situation we have now. Had the politicians only taken 90% instead of 100% of that surplus we would not even be having this discussion in America today. If we could get them to stop TAKING the surplus as we speak we'd not be having this discussion, if we removed the limit that says only the first 250k is subject to social security tax we'd not be having this discussion.

Also if my searching is to be believed the Australia system offers a benefit roughly 40% more than the American benefit, we pay on average 1,100 per month per person this year. Compare to the 1650s for Australia (converted) plus additional benefits like rent assistance and utility assistance that are not part of American social security.

Also you don't pay out drug prices so that's a another 50% more money for your seniors.

[weemadando]

True, but wholesale welfare reform to fix unforeseen issues in original schemes and the issues like an ageing populace has been a "priority" of most nations for decades, but remains political poison. Australia has moved to bring male and female entitlement into line (female was previously from 60, male 65) and to also shuffle them gradually to 67. So it's a step in the right direction. Even if you don't shuffle the start/eligibility date back to "fix" the ageing population/extended entitlement issue, then you can still look at how the system actually assesses an entitlement there and the actual processes involved (I have to imagine given the mess that is healthcare combined with the apparent issues with welfare that broadening entitlements overall might actually save money by massively decreasing administration costs).

[Block]

True, but wholesale welfare reform to fix unforeseen issues in original schemes and the issues like an ageing populace has been a "priority" of most nations for decades, but remains political poison. Australia has moved to bring male and female entitlement into line (female was previously from 60, male 65) and to also shuffle them gradually to 67. So it's a step in the right direction. Even if you don't shuffle the start/eligibility date back to "fix" the ageing population/extended entitlement issue, then you can still look at how the system actually assesses an entitlement there and the actual processes involved (I have to imagine given the mess that is healthcare combined with the apparent issues with welfare that broadening entitlements overall might actually save money by massively decreasing administration costs).

They've actually reformed our system a number of times since its inception, and there are supposedly tweaks that can be made that won't actually change what people who need SS get that will keep the system solvent well into the future.

[Themightytom]

Personally it entertains me that we "lowered" taxes by raising them, and "raised" taxes by "lowering" them. Democrats get more revenue from people making 400k+ but Republicans get permanence to the Bush Tax cuts for people under 400k, are they positioning themselves as champions of the middle class? I mean we really did just redefine who is rich, something long overdue, given the former calibration of the system. Both sides can somewhat accurately claim that they did what they meant to, except for Obama's 250k number and I doubt Republicans would really be able to go after him for that. I feel like in a bizarre and cumbersome way, we actually achieved a compromise at least politically here, which has been really absent of late.

Just in time for rounds two and three obviously, I'm not popping champagne for a functioning government, but it puts the next two hurdles in a much more positive context, this really could have been more of a slugfest, than it was, I was surprised the House Republicans stalled the Hurricane Sandy relief, plowing that through would have been really good for them politically. I get why stalling it a few weeks is good for them, they're going to blame democrats for spending, I just think people are more likely to be pissed at them NOW, when they would want the public with them for the next couple of weeks.

[Broomstick]

The Repubs stalled Storm Sandy relief because of the libertarian/Tea Party/go it alone extremists who feel government shouldn't bail out "losers" who didn't prepare adequately for the unforeseen. If you aren't wealthy enough to be able to save yourself you don't deserve help by their reckoning. Hence, bail outs for Wall Street but not for Breezy Point.

Yes, this did some vaguely maybe positive things but we'll be facing another cliff in two months time, more or less. That does not make me feel warm and fuzzy.