prev
next
The art of the "fiscal cliff" deal
Vice President Joe Biden leaves a closed-door meeting with Senate Democrats to urge them to support a tentative tax agreement with Republicans on Capitol Hill on December 31, 2012. / Drew Angerer / Getty Images
Nobody said it would be easy.
Senators voted in the pre-dawn hours of New Year's Day to pass the long-sought agreement on the "fiscal cliff" and the House readies for its turn as soon as today, which, if the House passes it, would officially avert the tax hikes and spending cuts that technically took effect at midnight (the deal, when signed by the president, will make the new tax rates and spending retroactive to midnight).
Biden advises not to predict outcome of "cliff" deal
How did the politicians involved get to their final agreement? Here's the rundown, according to officials familiar with the talks and with the White House's thinking:
Friday through Sunday: Senate Minority Leader Mitch McConnell's opening offer Friday night to Senate Majority Leader Harry Reid was a $750,000 income tax threshold and no jobless benefits and no extension of the earned-income tax credit and other low-income tax breaks, means-testing Medicare, and the Bush era estate tax rates. Offers bounced back and forth Saturday and on Sunday, Reid opted out and handed talks over to Vice President Joe Biden (at McConnell's suggestion). President Obama, Reid and House Minority Leader Nancy Pelosi were in tandem through the talks. Delaying the federal spending cuts, or sequester, fell out of the talks on Sunday but McConnell came down to $550,000 in income tax threshold and some estate tax concessions reflected in the final deal.
Sunday, 8 p.m. ET: Mr. Obama and senior staff met in the Oval Office to discuss their final counter-offer to McConnell. The president set the $400K and $450K income threshold with one-year of jobless benefits and some delay of the sequester. Biden and McConnell talked through the night. Their last call was at 12:45 a.m.
After that, Mr. Obama and Biden met in the Oval until 2 a.m. to go over final details. Mr. Obama sent his legislative liaison Rob Nabors to Capitol Hill at 2 a.m. to begin drafting a bill with Senate Democrats. Biden and McConnell spoke again at 6:45 a.m. The rest of Monday was devoted to resolving the sequester impasse.
Monday, 9 p.m. ET: Biden and McConnell sealed the deal by telephone (Biden spoke to McConnell after clearing final details with Mr. Obama). The president then called Reid and Pelosi for one final OK and the deal was announced/leaked/confirmed.
The officials also pointed out that to get to the final deal, moving Republicans from a position of no tax increases in debt ceiling debate to tax increases through tax reform after Mr. Obama's re-election to nothing more than $1 million in higher rates and now to $400,000 and $450,000 thresholds is a significant policy and political victory (worth $620 billion over 10 years).
When the big deal talks failed before Christmas, Mr. Obama's biggest goal was to get GOP buy-in on higher tax rates for the wealthy. It is regarded as one of the most significant policy victories in two decades, the officials said.
Compromising on the two-month sequester was difficult, the officials added. The White House wanted a full year of waiving the sequester but there was no time to negotiate the difficult policy details (the sequester talks took literally all of Monday).
As for the deal's effect on the deficit, it does not cut the deficit relative to what would have occurred if all the fiscal cliff tax cuts had been erased (meaning all Bush tax cuts expired) and the sequester kicked in full force. But, relative to a baseline that assumes all existing tax policy would have continued, the deal raises $620 billion in revenue. The Alternative Minimum Tax (AMT) fix is not counted by the WH, for example, because its extension was assumed in the existing policy baseline (that doesn't mean it won't cost anything; just that the White House doesn't count the cost).
The jobless benefit extension for one year cost $30 billion and that is not paid for. The Medicare "doc fix" is paid for by savings that will be taken from other provider payouts in Medicare. It costs $31 billion, meaning those provider cuts will pay for protecting doctors from a 27 percent automatic cut in premiums.
And $12 billion in new revenue comes from allowing 401Ks and other retirement instruments into Roth IRAs. This is the revenue that forms half of the offset of the two-month sequester delay. The other $12 billion will come from a 50-50 split of non-defense and defense cuts.
Popular in Politics
- Officials on Benghazi: "We made mistakes, but without malice" 438 Comments
- IRS' Lerner: "I have not done anything wrong" 263 Comments
- Anthony Weiner comeback try begins: Running for NYC mayor 108 Comments
- Major immigration overhaul passes first big test 69 Comments
- Will tornado relief funding escape politics?
- Top IRS official to invoke 5th Amendment at congressional testimony 215 Comments
- Christie: Keep politics out of Oklahoma disaster relief
- Va. GOP candidate won't apologize for comments on abortion, gays
Most Popular
-
01
-
02
-
03
-
04
-
05
Most Shared
Most Discussed
Every time the can is kicked down the road, we lose more confidence (if there was any left to lose) and lose respect (ditto), and most of all, we lose hope.
I understand that there are people that cant work in that 47 percent such as disabled ,and people with health issues but people are just riding that gravey train too frequently. Inflation is the biggest issue that must be controlled. When I was young in public school my mom gave me 1 dollar to buy lunch. With that 1 dollar I bought 3 slices of pizza a coke and candy. What do you have to send your kids to school with today. Raising debt ceiling will keep inflation rising. Both the left and the right are doing a poor leadership job and need to be removed and replaced with real leaders.
People that don't pay Federal income tax still pay dozens of other taxes including payroll taxes (you know, the ones that fund Social Security and Medicare) and the burden of those falls mostly on the middle class as top income to be taxed is capped and many wealthy people do not get "income" (capital gains doesn't count) so they pay NOTHING.
And the number still includes veterans, retired people who paid taxes their entire lives, unemployed people that are looking for work etc.
So stop spewing propaganda and get the facts. Our wealthy people (and all our people) pay the LOWEST PERSONAL INCOME TAX RATES in the developed world a;ready.
Everybody else pays the SAME payroll, state and local taxes, so that means nothing "special" for any particular group.
The top 10% of American earners ALREADY pay nearly 60% of the federal income taxes. Arguing about rates is just comical. Nothing more.
All of them!!
The good news is that middle class tax rates wont go up tomorrow (everyone knew they wouldn't), 2 million people on unemployment wont see their checks cut off, and they have stopped the annual charade of the Medicare Doc Fix and the Alternative Minimum Tax fix - which were never going to go back to where they started anyway.
That said - not enough revenue is raised. Not enough (or any) spending is cut. And as soon as this deal goes in, the argument begins on the NEXT deal which is the debt limit and the rest of the TAX INCREASES that we need, and spending cuts we must have - and that has only 2 months o go, what makes ANYONE think the conversation is going to get any easier?
Fundamentally the problem is simple, it is only POLITICALLY difficult:
1) Total government revenues need to rise back to historical averages (around 19% to 20% of GDP) over the next few years - and few doesn't mean 10, it means 2 to 3. Even with these "tax increases" (actually expiration of tax cuts) the total revenue will only be about 16% of GDP. The bulk of those increased revenues have to come from the wealthy and from corporations getting unnecessary tax breaks.
2) Spending must be cut to balance the revenues - at about 20% of GDP over the next few years. Again - few doesn't mean 10. It is currently at 24%. Those cuts must come from Defense as well as discretionary spending, they can include reduction on interest payments as long as that balances spending and revenues, and long term restructuring of Medicare and Medicaid costs MUST be addressed. Note that addressing cost increases doesn't mean cutting benefits - it means fixing the reason costs are rising too fast.
3) The GOP makes one good point - a growing economy generates more revenues without increasing tax RATES. There is NO WAY to achieve the necessary revenues on growth alone because it would require growth rates more than double the highest points IN HISTORY, but growth is critical. Which means over the next few years, some deficit spending that boosts the long term economic picture IS NECESSARY. Also note this doesn't mean pure short term stimulus, it means long term value.
So the solution is pretty simple. The details are politically difficult - because we MUST raise more revenue, we MUST cut spending, and we MUST restructure Medicare / Medicaid cost growth or we will not b able to balance the budget.
The GOP is the biggest obstacle to getting this done, because they are automatically against ANY revenue increases, and automatically against ANY defense spending cuts. Democrats could be convinced to support Medicare / Medicaid reform as long as actual benefits to people don't get cut.
And thanks to that, assume the next two years will be a grueling and useless political charade until the GOP loses the House in 2014 - or until the GOP kicks the Tea Party factions to the curb and starts making real compromises. And for me personally, I WANT the GOP to make real compromises and not get kicked out - because we NEED conservative voices and we need to keep taxes as low as POSSIBLE and shrink government as much as POSSIBLE in the final solution.
The way he manipulated you, some might be led to believe that this tax increase on the richest 1.5% solves all of the problems! I'm no economic genius, but I don't think it makes a dent in the projected deficit for 2013. I'm at least bright enough not to fall for this "10 year" projection farce. That's the only way either side can get to a Trillion dollars!
Could you please do your jobs and force them to communicate in one year projections?
Idon;t think they are being maniopulated, just pouncing on whatever is controversial.