An agreement appears to be coming together to avert the "fiscal cliff." While it would put off entitlement reform, it would give Republicans much of what they want on taxes. Republicans could still reject the plan even as liberals complain that Democrats are giving away too much.
The plan that appears to be coming together, according to Bloomberg's Joshua Green and New York Magazine's Jonathan Chait, would make the Bush-era tax cuts permanent for all taxable income below about $400,000 to $500,000 and increase the threshold and lower the rate for the estate tax. In return, Democrats would get an extension of unemployment benefits, a one year delay in planned cuts to doctors who provide services for Medicare patients, and a temporary fix to the alternative minimum tax to prevent tax increases on many middle income households.
In another concession to Republicans, an increase to the debt limit will not be part of the agreement. Republicans had tried to change how the cost-of-living allowance is calculated for Social Security as part of the deal, but Democrats rejected that idea.
The Republican position has been that all of the Bush-era tax cuts should be made permanent while the Democratic position has been that the Bush-era tax cuts should be made permanent for all but the top two tax brackets (which kick in around $250,000 even though Democrats often refer to this group as "millionaires and billionaires.") The Republican-controlled House passed a bill reflecting those Republican priorities and the Democratic-controlled Senate passed a bill reflecting those Democratic priorities. The $400,000 to $500,000 threshold is a middle ground between the two parties.
If the agreement does pass, it would only deal with the tax side of the fiscal cliff. The automatic spending cuts, known as sequestration, would still begin going into effect. With the looming debt ceiling deadline, though, negotiations will continue on spending cuts. The debt limit was technically reached on Monday, but Treasury Secretary Timothy Geithner will use "extraordinary measures" to pay the nation's debts for about two more months.
Green argued Democrats are offering a great deal to Republicans because they would get permanent tax cuts in exchange for temporary policies for Democrats.
"That means Democrats are offering a huge gift to Republicans and getting almost nothing in return because on Jan. 1, if no deal is struck, Democrats will get even more revenue than they're asking for without conceding a thing. And if, as polls suggest, voters would blame Republicans for going over the cliff, Democrats are also offering to save Republicans from their worst impulses -- which, at least for the time being, since they haven't yet agreed, is to reject this deal," Green wrote.
Liberal columnist Jonathan Chait was incensed at the news that Democrats would compromise on the threshold at which taxes would be allowed to increase.
"As of last night, Democrats were conceding the estate tax plus the higher exemption on tax rates, which had risen to $450,000. And Republicans still hadn't agreed to it! Why would they, when Democrats keep hurling money at them? By midnight, Republicans might be getting the Saturday Night Live version of Obama's offer ("a 1% raise on the top two Americans - just two people")," Chait complained Monday in an article titled, "Why Is Obama Caving on Taxes?"