Fiscal Deal: Tax Hikes, Green Pork, Stimulus, Oh My
Surprise surprise, they have a deal to avoid the politicians’ cliff. Who didn’t see that coming?
Here’s an enigmatic riddle for you: what happens when Republicans publicly obsess about the degree of tax increases they are willing to accept without a commensurate demand for spending cuts? You get tax hikes and no spending cuts! In fact, we will spend even more as a result of this deal. Haven’t we seen this rodeo a gazzilion times?
As if on cue, negotiators have agreed to raise the top income tax rate from 35% to 39.6% on individuals earning more than $400,000 and married filers earning above $450,000. They will also see their dividends and CapGains tax rates go up to 20%. In addition, the Death Tax, which should be completely abolished, will increase from 35% to 40% on all assets above $5.12 million. There will be a permanent AMT patch as well, as if there already wasn’t one anyway.
What about the spending side? Here are the spending increases:
- A $30 billion one-year extension of Medicare doc fix
- A $30 billion one-year extension of 73 week unemployment insurance. Over the past four years, the federal government has collected roughly $192 billion in federal unemployment payroll taxes, while paying out $510 billion in benefits. Evidently, that’s not good enough.
- Stimulus Refundable Tax Credits: Somehow, a 5-year extension of Obama’s stimulus refundable tax credits got inserted into the deal. So he calls a tax cut a handout, and a handout a tax cut. These latter three provisions alone will easily top $100 billion a year, dwarfing the $50-$60 billion in static revenue projections from the tax cuts on the rich. So much for a balanced approach.
- Green Energy Pork: The irony is that while the rich earned every penny of their money, Obama refers to the current system – one in which the top 1% pay 37% of the taxes – as a handout to the rich. Yet, this deal extends a true handout, the 2.2 cent per kilowatt/hour wind Production Tax Credit. This is a refundable credit that can be claimed by any wind company that fails to generate a profit, of which there are many. In addition, all special interest credits passed out of the Senate Finance Committee – the real loopholes in the tax code – are included in the deal.
Of course, nothing is being done about the 5 major Obamacare tax hikes that are set to take effect this week, including the deleterious 2.3% tax on all medical devices, the millionaires’ surtax, and the 0.9% increase of the Medicare payroll tax. It’s absolutely stupefying that Republicans couldn’t use this as a leverage point, after 16 Democrat senators, including Al Franken, wrote a letter requesting a delay in the implementation of this tax.
Of course, there is no agreement that Senate Democrats must formulate a budget for the first time in 1342 days.
It’s amusing to watch some Republicans decry Obama’s smug press conference and his mocking threat of raising more taxes during the next fiscal imbroglio over the debt ceiling. Obama is correct. Once you agree to the notion that we need to raise taxes on the rich (both through the expiration of the Bush rates and the Obamacare taxes), why shouldn’t every debt deal contain a “balanced approach?”
Not only will Republicans fail to push real spending cuts in exchange for the debt ceiling, they might actually toss an interception and incur more tax increases. Lindsey Graham already began repeating the insanity from 2011 by demanding spending cuts from Obama in one sentence while emphatically declaring he would never “let us default” in the next sentence. That sort of rhetoric will really scare Obama into compromising on spending.
Moreover, the preliminary framework of this deal calls for delaying the sequester for two months. That will coincide perfectly with the debt ceiling fight, providing Obama with another bargaining chip and gratuitously exacerbating the schism between fiscal conservatives and defense hawks.
The Senate is voting tonight on the bill, and it looks like they have the votes to pass this stimulus/tax hike. House conservatives must demand an open floor process so they can offer an amendment to fully extend all the rates including making the payroll tax cut permanent. That is a much better alternative middle class tax cut than Obama’s refundable credit handouts. Let Obama oppose the aspect of the fiscal cliff that will be felt most vividly and immediately.
The amazing thing is that this deal is more appalling than the previous plans floated over the past few months. If Republicans planed on caving, why didn’t they just agree to this in November? At least the stock market would have been spared from uncertainty.
Cross-posted from The Madison Project