At midnight, the US hit the fiscal speed bump, as I had predicted, but it appears it may be a very short bounce, since the Senate passed a deal. There are some good things about it, and some bad, but there is more good and less bad than I expected. The measure now goes to the House.
The Senate voted overwhelmingly early Tuesday to approve legislation to halt a tax increase for all but the wealthiest Americans while postponing for two months deep spending cuts. The vote came just hours after the accord was reached between the White House and congressional leaders.
After a rare holiday session that lasted through the New Year’s Eve celebration and two hours into New Year’s Day, senators voted 89-8 to approve the proposal. Three Democrats and five Republicans dissented, most prominently Sen. Marco Rubio (R-Fla.).
“It took an imperfect solution to prevent our constituents from very real financial pain,” Senate Minority Leader Mitch McConnell (R-Ky) said before the vote. “This shouldn’t be the model for how to do things around here. But I think we can say we’ve done some good for the country.”
President Obama, in a statement released by the White House early Tuesday morning, said, “While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.”… [emphasis added]
Inserted from <LA Times>
Photo credit: USA Today
Whether the bill becomes law depends on one thing. If Speaker John Boehner (R-The Closest Bar) requires support from the majority of his Republican caucus, there will be no vote in the house and the measure will fail. If he brings it to the floor, there are probably enough votes from Democrats and less crazy Republicans to pass it. He faces a dilemma, because allowing the vote could cost him his big gavel, but obstructing it could cost him his job in the next election.
Here are the known details of the deal:
- 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 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. The spending cuts will come half from defense and half 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, reports Garrett.
- The estate tax: it was set to increase from rom 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… [emphasis added]
inserted from <CBS>
Photo credit: Business Week
I was willing to accept a threshold up to $500,000. I expected them to kick the can on the sequester, but Democrats procured an agreement that half the remaining offsets will be funded by more tax increases, and only half by spending cuts. Unemployment benefits are guaranteed thought the end of the year. The Doc Fix is a big plus for folks on Medicare. A permanent fix for the AMT is great news, and the renewable energy tax credit is gravy.
An the negative side, they did not renew the payroll tax cuts or reach agreement on the debt limit, but after the costly debacle Republicans experienced when they could not escape the blame for the last time, I think they will cave-in, when the time comes. While, I do not like these facets, I recognize that, had the Republicans been given nothing, they would have no incentive to pass it.
Obama has promised that he will not even negotiate on the debt limit, and as long as he holds to that, Republicans will have no leverage, and this deal will have been a big win for the good guys.
The ball is in Agent Orange’s court.
