It ain’t over “til it’s over. They patched but they didn’t really slash. The Senate has come to an agreement or should we say a “deferral.” Legislators have effectively agreed to focus on taxes but deflect the tough decisions on long term budget cuts. We’ve decided to hold off on borrowing more money from China and to ask the wealthy for it instead. The middle class has been spared which, I believe, is unfortunately not going to be sustainable long term. That’s because Congress tabled the spending cuts. The across the board cuts that need to happen are just going to get mired in more bureacratic wrangling. This drop deadline last night would have allowed both the Democrats and Republicans to take political cover in across the board cuts. It was an “out” for all of them but it took guts. The next two months are just going to delay inevitable cutbacks. And launch an army of special interest groups and lobbyists who will descend on Washington to talk budget cuts just when we need to be implementing changes in healthcare and figuring out how to avoid another Sandy Hook.
Here are the known details of the deal from CBS News:
Tax rates: Current tax rates will be extended for all wage earners making below $400,000 and couples making below $450,000. This was a key concession for both Republicans and Democrats. Democrats wanted the threshold for tax increases to rest at $250,000 and Republicans didn’t want marginal tax rates to increase for anyone.
The estate tax: It was set to increase from 35 percent to 55 percent in 2013. Instead, the compromise sets the new rate at 40 percent with the first $5 million worth of property exempt from being taxed.
Capital gains tax: Capital gains and dividend tax rates will increase from 15 to 20 percent.
Alternative Minimum Tax: A permanent fix to the tax that would hit middle class families
“Doc Fix”: Doctors will be shielded from a massive reimbursement gap for treating Medicare patients.
Unemployment benefits: Unemployed workers will receive their benefits which expired over the weekend.
Renewable energy tax credit: The tax credit for renewable energy companies will be extended for another year.
While the extension of unemployment benefits and the Medicare “doc fix” cost money, and revenue will be lost due to a fix in the Alternative Minimum Tax, the package will still increase the federal government’s receipts. The total package will add $600 billion to federal coffers.
Also included in the deal is an unrelated provision but one that would have impacted Americans’ pocketbooks. According to Senate Agriculture Committee chairman Debbie Stabenow, D-Mich., negotiators agreed to a nine-month partial extension of the farm bill. The legislation, which dictates subsidies to crop and commodity growers, was also set to expire at midnight, and the impact was likely to cause milk prices to rise to $7 or $8 a gallon.
What has been left out of the “cliff” deal:
The sequester: The $110 billion worth of automatic spending cuts under the sequester will be delayed for two months. The cost of continuing current federal spending levels will be offset by revenue increases and some spending cuts. In two months, the delayed spending cuts will kick in half will come from defense and half from non-defense accounts.
The two-month window is to allow Congress and the White House to come up with a larger deal on spending cuts, leading to another (though smaller) “fiscal cliff.” Democrats see this deal as a victory because Republicans had objected to using any new tax revenue to offset the loss of sequester spending cuts.
Payroll tax extension: payroll taxes will increase by 2 percent for all wage earners. This was passed and extended by Congress to give taxpayers additional relief during the slow economic recovery.
Debt limit: The country reached its debt ceiling today, according to a latest estimate by Treasury Secretary Timothy Geithner, but because of maneuvering and shuffling the nation’s balance books, bills can be paid for another two months. Another debt ceiling fight is poised to happen around the same time the new sequester is expected to kick in.
Emphasizing the importance of deficit reduction to his fellow Republicans, Senate Minority Leader Mitch McConnell, R-Ky., the GOP’s lead negotiator, urged his colleagues not to hold up a deal because budget cuts have not been addressed. Earlier in the day he called the tax portion of the “fiscal cliff” the most important component and said, “Let’s take what’s been agreed to and get moving.”