The clock is ticking for the White House and congressional Republicans to come up with a plan for how to avoid the “fiscal cliff” — the more than $500 billion in annual tax increases and spending cuts scheduled to go into effect on January 1.
As the deadline draws closer, both sides have staked out positions, and each side is pretending that they won’t compromise.
But Washington does its best work when things are down to the wire, so political insiders insist that it’s still likely that the two parties will come to some kind of agreement by the end of the month or shortly thereafter.
Below, we take a look at where the negotiations currently stand, and what the deal is expected to look like when all is said and done. We’ll update this post as talks progress, so check back for new developments.
Here’s the Consensus
The consensus among political insiders is that the White House and congressional Republicans will reach a deal, even if it means lawmakers have to return to Washington after Christmas.
Here’s the general consensus of what the deal will look like:
Around $1 trillion in additional tax revenue over 10 years, including the expiration of the Bush tax cuts for those earning more than $250,000. Despite public posturing, it is widely believed that the GOP will end up agreeing to raise marginal tax rates on high-income earners. Top Republicans have started to raise doubts about whether it is politically wise for the GOP to go over the cliff in order to protect tax rates for the wealthy, and the business community is putting pressure on the party to give in to raising taxes on high-income earners.
The tax increases will likely include treating dividends as ordinary income (which will mean a tax increase from 15% to 40% for the top bracket)
Long-term capital gains taxes will likely rise from 15% back to 20%, the rate before the Bush tax cuts took effect.
Some observers, Ben White of POLITICO, for example, believe that the top income tax bracket will not rise all the way back to the Clinton era 39.6% but, instead, will increase to 37% or so.
The consensus is that the deal will NOT include the extension of the payroll tax cut or unemployment benefits, both of which the White House has asked for.
The estate tax hurdle will likely be returned to 2009 levels.
The consensus is that there will NOT be any capping of deductions, which the Republicans have proposed.
About $1 trillion in spending cuts
These cuts are expected to include defense spending and entitlement spending.
They are also expected to include $400 billion in cuts to Medicare.
The deal might include a rising of the current debt ceiling, however, to head off another near-term fight.
The consensus is that the deal will NOT include permanent removal of the debt ceiling (something the White House has asked for).
The deal is NOT expected to include any new stimulus (the White House has asked for $50 billion — a combination of infrastructure spending and aid to underwater mortgage holders).
So, that’s the general consensus of what a deal might look like.
There is also an increasing view that the deal won’t happen until January, when both sides can tell constituents that they did not vote to raise taxes (because taxes will have already gone up), but, instead, voted to cut taxes and spending.
Now, here’s where the two sides are…
Here’s The White House Offer:
Last week, the White House laid out its initial offer to GOP congressional leaders. According to a leaked report from Republicans aides obtained by the Washington Post, the plan includes:
$1.6 trillion in tax increases over 10 years, including:
Allowing the Bush tax cuts to expire for those earning more than $250,000.
Taxing capital gains and dividends as ordinary income for high-income earners.
Capping deductions for high-income taxpayers.
Returning the estate tax to 2009 levels.
Deferring sequester spending cuts, which includes cuts to defense spending and other domestic spending.
$600 billion in unspecified spending cuts, including $400 billion in savings from Medicare and social programs to be determined next year, with no guarantees.
$200 billion in new spending including:
A $110 billion extension of the payroll tax.
$50 billion of additional stimulus spending in 2013.
A mass home mortgage refinancing proposal.
A $30 billion extension of unemployment insurance.
The end of Congressional control over the debt ceiling.
The White House confirmed last week that the administration’s plan closely resembles the president’s “Plan for Economic Growth and Deficit Reduction,” which was submitted in September 2011.
Now, the ball appears to be in the GOP’s court.
Republicans responded to the administration’s proposal with mockery and disbelief, dismissing the plan as a “joke” that avoids tough choices on how to cut spending and reform entitlement programs. Publicly, GOP leaders have said that they are willing to increase revenues, but will not agree to a deal that raises marginal tax rates on high-income earners. Top Republicans are also insisting that any deal includes specifics on entitlement reform.
Meanwhile, the Obama administration appears to have staked out its line in the sand. In an interview with “Meet the Press” Sunday, Treasury Secretary Tim Geithner said that the White House is waiting for the GOP to declare how far they are willing to go to raise taxes on the wealthy. He also said that if the GOP wants entitlement cuts, they are going to have to propose them first.
Here’s The Republican Counter-Offer:
House Republican leaders issued a formal response to the White House’s proposal, offering a fiscal cliff agreement based on the plan that former Clinton chief of staff Erskine Bowles presented to the super committee back in November 2011.
That plan would raise revenues by $800 billion by closing loopholes and deductions. In the letter, Republicans make it clear that they will not agree to raise marginal tax rates on high-income earners.
The plan also includes $900 billion in mandatory spending cuts, as well as $300 billion in discretionary spending.
Notably, Boehner’s letter does not give any specifics on how Republicans would achieve these revenue increases or spending cuts, but simply proposes using Bowles’ plan as a framework for negotiations.
Source: Business Insider