Here Are the Latest Must-Know Details on the ‘Fiscal Cliff’ Debate
With just hours before the United States goes over the so-called “fiscal cliff,” Republicans and Democrats are still hashing out the details of a deal to avert the potential crisis. Despite rhetoric and a plethora of debate, Business Insider’s Henry Blodget contends that the two sides are “absurdly close” on striking a deal. But being somewhat near one another on some indicators doesn’t necessarily mean the two sides will oblige and come to agreement in time.
Based on Washington Post analysis of the dialogue as it currently stands, Blodget notes some of the concessions that Democrats have made to assist in bridging the divide on taxation. Rather than commencing higher taxes on couples making $250,000, Democrats have agreed to increase that sum to $450,000 (some in the GOP are insisting that this number be $550,000).
On another note, though, the Democrats — despite Republican push-back — plan to raise capital gains and dividend taxes to 20 percent for those families making $250,000 or more. Some deductions will also be reduced for these households. Below, see some of Blodget’s other bullet points highlighting where the Democrats currently stand on a plethora of issues pertaining to the “fiscal cliff”:
- The Democrats’ offer would permanently protect middle-class households from the Alternative Minimum Tax. No details on how this would work.
- On the spending side, the Democrats’ offer would delay the “sequester” (automatic spending cuts) until 2015. This would cost an estimated $200 billion. But it would avoid the cuts to the military budget that the Republicans are so desperate to avoid.
- The Democrats would also extend unemployment benefits for a year, extend farm subsidies for a year, and avoid a 27% cut in Medicare payments to doctors. The Republicans say they want offsets to these spending cuts.
Despite being relatively close on some indicators, the debate continues. On Sunday, Senate Minority Leader Mitch McConnell, R-Ky., spoke repeatedly to Vice President Joe Biden, a former Senate colleague, in hopes of settling remaining differences and clinching a breakthrough that has evaded the two sides since President Barack Obama’s November re-election.
In one indication of the eleventh-hour activity, aides said the president, Biden and top administration bargainer Rob Nabors were all working late at the White House, and McConnell was making late-night phone calls as well. According to POLITICO, sources close to the discussion claim that an agreement on income level taxation could be close:
McConnell and Biden, who served in the Senate together for 23 years, are closing in on an agreement that would hike tax rates for families who earn more than $450,000, and individuals who make more than $400,000, according to sources familiar with talks.
The stakes remain high. Unless an agreement is reached and approved by Congress by the start of New Year’s Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs. Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.
Despite discussion, there was still no final agreement on the income level above which decade-old income tax cuts would be allowed to expire. While Obama has long insisted on letting the top 35 percent tax rate rise to 39.6 percent on earnings over $250,000, he’d agreed to boost that level to $400,000 in his talks with Boehner.
The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.
Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.
These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.
“We can’t use tax increases on anyone to pay for more spending,” said Sen. Kay Bailey Hutchison, R-Texas.
Both parties also want to block an immediate 27 percent cut in reimbursements to doctors who treat Medicare patients. Republicans wanted to find savings from Obama’s health care bill as well as from Medicare providers, while Democrats want to protect the health care law from cuts.
Both sides agree that a temporary 2-percentage-point cut in the Social Security payroll tax was likely to expire. That reduction — to 4.2 percent — was initiated by Obama two years ago to help spur the economy and has meant $1,000 annual savings to families earning $50,000.
A senior defense official said if the spending cuts were triggered, the Pentagon would soon begin notifying its 800,000 civilian employees to expect furloughs — mandatory unpaid leave, not layoffs. It would take time for the furloughs to be implemented, said the official, who requested anonymity because the official was not authorized to discuss the preparations.
The Associated Press contributed to this report.
(H/T: Business Insider)
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