Cramming with Cliff Notes: Something to Watch Out For

December 30th, 2012 at 11:08 pm

Not all tax threshold deals are created equal.  Read on.

It ain’t over til we’re over but awfully hard to see a path that resolves the cliff before the deadline.  As I noted earlier, this isn’t necessary a bad thing–compared to what we’ve been hearing come out of the frenzied last-minute negotiations, there’s likely a better deal on the other side of the cliff.

What do I mean by better?  One that raises at least $1 trillion in tax revenue (over 10 years), an amount that the deal was converging towards, extended UI benefits, and targeted spending cuts, not across the board sequestration.

The R’s have dropped their late and ill-timed chained-CPI demand, and VP Biden and Sen McConnell are negotiating.  These guys can close deals, but not if their caucuses are insurmountably divided.

They’re surely arguing over the income tax threshold but if you’re still following this stuff–and if your disgust level has finally been breached, believe me, I understand–keep an eye on the details.  When the President offered Rep Boehner to raise the income tax rate only on households over $400,000, that deal actually included higher capital gains and dividend rates (currently at 15% up to 20%), along with the repeal of certain exemptions starting on incomes of $250,000.  That’s why even with the higher threshold for the income tax rate, that tax deal still raised over $1 trillion over ten years.

From what I’m picking up in the papers, that part of the tax deal has been lost.  That’s why we’re seeing numbers like $600 billion over 10 from the higher thresholds under discussion.  Add to that the R’s pushing to keep the estate tax parameters where they are as opposed to the slightly more progressive ask from the White House, and we’re looking at a deal that locks in insufficient revenue.  And you ask me, were D’s to take such a deal, you won’t see the R’s  back at the new tax revenue well any time soon, with “soon” being like decades.

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2 comments in reply to "Cramming with Cliff Notes: Something to Watch Out For"

  1. Th says:

    The “cliff” only changes the bargaining if you use it. I have not heard anyone on the Democrats side say that all offers are withdrawn and negotiations start from square one on January 1. As far as I can tell, the deals get progressively worse as we go along.