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Fiscal Cliff Update.....
December 4, 2012
WHERE DO WE STAND?
With all the commentary and speculation surrounding the impending "fiscal cliff", we are providing this update on where the Congressional talks stand.
Events from the Daily Tax Report, presented by Bloomberg/BNA are summarized below. Overall, here is a synopsis of where Congressional talks stand.
- The White House's initial offer to resolve the fiscal cliff was quickly rejected by House Republicans. The key provisions of that offer are listed under the November 30, 2012 headline. House Speaker Boehner said that separating tax cuts between "middle-income" and "higher-income" taxpayers would hurt the economy.
- Proposals exist to extend the current estate tax, or adjust it to the 2009 level of a $3.5 million exemption per person and a 45 percent rate.
- Both parties agree that the AMT patch needs to be extended, but neither side is willing to budge before the fiscal cliff deal is done.
- Yesterday (December 3rd, 2012) - Republicans submitted a counteroffer that represented a shift away from their previous position about raising revenues through tax reform. Tax analysts said Boehner's offer to use tax reform as a way to reduce the nation's budget deficit was a major concession.
- While analysts recognize the major concession being made by the Republicans, they question whether the counteroffer to raise $800 billion would be possible without impacting families earning less than $250,000.
- In response to the Republican's counteroffer, Democrats were not moved by the proposal. They stated the proposal fell short by not offering any details about which tax loopholes would be closed or how they would go about plans to wring additional savings from Medicare. They also felt that Boehner's plan simply pushed meaningful deficit reduction efforts down the road while guaranteeing a continuation of tax cuts for high-income individuals now.
- Boehner aides say that all those details can be negotiated once the two sides agree on a framework.
Negotiations will continue daily, but according to some reports, analysts are not optimistic that any budget deal will be reached by the end of the year.
HEADLINES:
November 29, 2012: Goals for Reaching a Deal to Avert Tax Hikes Still Unsettled, Lawmakers Say
President Obama urged Congress to extend middle-class tax rates now so lawmakers can clear the way for a more comprehensive deficit-reduction plan with tax reform next year. Republicans, meanwhile, said the focus is on extending all current tax rates through 2013 and cutting entitlement spending to reduce the budget deficit.
More immediately though, Obama said he would prefer to simply sign the Senate-passed bill that would extend only tax cuts on the first $200,000 individuals earn and $250,000 for couples.
Tom Cole (R.-Okla), told reporters Republicans could reclaim the political advantage by agreeing to extend the tax rates for those earning less than $250,000 and fight for the other income tax cuts in 2013.
House Speaker John Boehner said separating the "middle-income" tax cuts from those for higher income households would hurt the economy. He disagreed with Cole stating that half of the so-called top 2 percent of taxpayers are small business owners that pay their taxes through their personal income tax filing every year.
The White House argued that passing the Senate bill in the House would give families and businesses peace of mind heading into the holidays. To quote President Obama, "My hope is to get this done before Christmas."
Erskine Bowles, co-chairman of the 2010 anti-deficit presidential commission, (Bowles-Simpson), was not optimistic that lawmakers and the White House would manage to reach at least a temporary budget deal by the end of the year.
November 30, 2012: GOP Rejects White House Offer Including Payroll Tax Cut Extension, Stimulus Spending
The White House's initial offer to resolve the fiscal cliff impasse was quickly rejected by House Republicans. Republicans said they will refuse to accept any plan that would demand an immediate increase in tax rates without a similarly prompt reduction in spending.
White House Press Secretary Jay Carney defended the White House, noting that not only did the president submit a 70-page deficit-reduction proposal with spending cuts in September 2011, but is was included in the president's budget submission in 2012.
Key provisions in the initial Administration offer to Republicans:
- Income Tax Rates: Returns tax rates for individuals earning more than $200,000 and couples earning more than $250,000 to pre-2001 levels of 36 percent and 39.6 percent.
- Capital Gains and Dividends: Raises both capital gains and dividend rates to unspecified levels.
- Estate Tax: Returns estate tax rate to 2009 levels of a 45 percent rate and a $3.5 million per person exemption
- AMT Patch: Raises exemption level for alternative minimum tax from $33,750 for individuals and $45,000 for couples to $50,600 ($78,750 for couples) in 2012.
- Stimulus: Extends 2 percentage point payroll tax cut, or an alternative to it, and bonus depreciation through 2012 (WRD believes they meant to say 2013).
- Sequester: Defers $1.2 trillion in mandatory government spending cuts until January 2014
- Tax Reform: Calls for comprehensive tax reform in 113th Congress that is consistent with a $1.6 trillion tax increase.
December 3, 2012: Estate Tax Just One Area in Which Obama, Lawmakers Disagree as End of Year Nears
The White House proposal on Nov. 29 called for the estate tax to be set at the 2009 rate of 45 percent, with an exemption level of $3.5 million per person.
Senate Finance Committee Chairman Max Baucus (D-Mont) disagreed, saying the current estate tax rates should be extended rather than increased at the end of the year.
House Minority Leader Nancy Pelosi (D-Calif.) threatened to file a discharge petition Dec. 4 to bring to the floor the Senate-passed tax cut extension, should House Republican leaders continue to keep such legislation off the floor schedule.
If scheduled for a House vote, Pelosi predicted passage because she said that middle-class tax cuts have tremendous support in the Republican caucus. She noted additional tax legislation would be necessary because while it addresses AMT, it does not include any estate tax language or an extension of dozens of expired and expiring business and individual tax breaks such as the R&D tax credit or the deduction for state and local sales taxes.
Lawmakers on both sides agree that the AMT patch should be extended, but neither side is willing to budge before the fiscal cliff deal is done, even though the Internal Revenue Service has been clear that a further delay in its enactment will almost certainly delay the tax filing season.
December 4, 2012: Boehner Reverses GOP Stance Against Using Tax Reform to Raise Revenues
House Speaker John Boehner (R-Ohio) submitted a counteroffer to President Obama Dec. 3, proposing to use tax reform in 2013 as a way to raise $800 billion in new revenues rather than allow the top marginal income tax rates to rise in January.
The offer represented a shift away from the previous Republican position that tax reform needs to be done in a revenue-neutral way and is intended to be a concession to Democrats' demands that high-income individuals be asked to pay more, though not necessarily from higher marginal income tax rates.
Aides to Boehner said the offer does not include any details for tax changes that would raise revenues and does not include any target for a certain amount of down payment on future reforms that would require lawmakers to reduce spending or raise revenues immediately.
Tax analysts said Boehner's offer to use tax reform as a way to reduce the nation's budget deficit was a major concession, but could still fall short if Obama thinks it is more important to get immediate savings and follow through on his campaign pledge to boost the top tax rate to 39.6 percent.
Chuck Marr, an analyst at the Center on Budget and Policy Priorities, questioned whether it would even be possible for the Republican proposal to raise $800 billion without impacting families earning less than $250,000.
"It's telling there's no detail of any deductions that would be changed or limited in any way. The president's proposal was very specific," Marr said. "The pressure is on congressional Republicans to specify what they would change to raise the money, and that's in stark contrast to the president."
Regardless of the numbers, Chris Edwards (Director of Tax Policy at the Cato Institute), called Republicans' softening on the issue of tax revenues "astounding."
Democrats were not moved by the proposal, saying Boehner's plan simply pushes meaningful deficit reduction efforts down the road while guaranteeing a continuation of tax cuts for high-income individuals now.
Dan Pfeiffer, White House Communications Director, said the Boehner proposal also fell short by not offering any details about which tax loopholes would be closed or how they would go about plans to wring additional savings from Medicare.
Boehner aides said all of those details can be negotiated once the two sides agree on a framework for the amount of savings that needs to be achieved.
On the health care side, the aides said they could support an increase in the Medicare eligibility age as well as means testing for the Medicare program.
Patrick Lester, director of fiscal policy at OMB Watch, said the public releases of the administration and Republican proposals so far appear to be about positioning for political purposes and "avoiding blame if negotiations fall apart."
"The House Republicans still aren't supporting increased tax rates on the wealthy, which is a key sticking point between them and the president. But you wouldn't expect that at this stage. We are still early in the negotiations," Lester said.
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