In what could be a landmark decision, the U.S. House of Representatives made a major tax concession this week in proposing to increase tax rates on millionaires. House Speaker John Boehner made the proposal, which would increase taxes on Americans who earn more than $1 million a year. The deal is far from final but plants the seeds for a new potential resolution. As the clock continues to tick and the House of Representatives nears its fiscal cliff deadline, pundits are questioning what spending cuts will President Obama agree to in return.
Where they stand
Up until now, both Democrats and Republicans have stood their ground regarding the Bush-era tax rates that are set to expire at the end of 2012. President Obama has consistently pushed for tax rate increases for Americans earning $250,000 or more, a far lower income than what Boehner proposes to target. Boehner and House Republicans have insisted on cutting programs to lower the deficit, including changes such as increasing the eligibility age for Medicare. The tax hike for millionaires, as proposed, would reportedly increase taxes from the current 35 percent to 39.6 percent. Of course, with negotiations still in the works, this percentage and the base for the tax hikes could change, or disappear altogether.
James Politi reported in a December 16, 2012 article to the Financial Times, “Boehner posits more tax on $1m-plus earners,” that Boehner’s concession could end the standoff.
“Boehner’s offer transforms the negotiations,” said Sean West, a U.S. policy analyst at the Eurasia Group, in Politi’s article. “It will still take time to agree and pass a final deal but this is a signal that we are highly likely to get there.’”
Deal points on the table
While the details have not been officially confirmed, and the White House has not made agreements yet, Boehner’s proposal reportedly comes with several contingency points. Some of these points include:
- A one-year lifting of the debt ceiling
- Dollar-for-dollar cuts in entitlement programs tied directly to the tax revenue number
- $1 trillion in revenue over 10 years with $440 billion coming from higher tax rates, $500 billion from tax reform in 2013 and $60 billion from changes in benefit and tax treatment tied to the Consumer Price Index
Boehner’s decision to make the concession on higher taxes for the rich seems to stem from increasing numbers of Republicans in the Senate who supported the idea in recent months, as well as public approval. Findings from a recent Pew poll reported to Moneywatch in “‘Fiscal cliff”’ negotiations enter homestretch,” a December 16, 2012 post by Jill Schlesinger, show that nearly three-quarters of respondents (74%) say that a combination of both cutting major programs and increasing taxes is the best way to reduce the deficit. Other findings showed that most people opposed spending cuts on federally funded programs including:
- Education (77% disapprove)
- Roads and transportation (67%)
- Programs to aid low-income Americans (58%)
- Military defense (55%)
- Raising the retirement age for Medicare and Social Security (56% each)
In addition to these findings, the Pew Research Center found that 69 percent of people say they support increasing income taxes on people who earn more than $250,000. Given these statistics, Boehner was not in a position to hold out for too much longer, considering the damage his party has already sustained from the election. In order to soften his party’s image, he needed to show some effort to work together. The poll’s findings illustrate the American public’s support of President Obama and the Democratic Party’s willingness to negotiate, according to Andrew Kohut, president of the Pew Research Center. In a December 13, 2012 interview with Robert Siegel on NPR’s All Things Considered, “On ‘Fiscal Cliff,’ Majority Of Public Sides With Democrats, Pew Polls Show,” Kohut outlined how the Republican party is being perceived through the Fiscal Cliff talks.
“Well, by a wide margin, 55 percent to 28 percent, people think that President Obama is making a serious effort, relatively few, 28 percent say Republicans are doing the same,” Kohut said. “And it’s part of a pattern that we see in this poll that the Democrats are just in a much stronger position with the public… And the Republican Party is seen as the party that takes extreme positions and the Democrats are seen as the party that’s conciliatory, wants to make a deal. The Republicans have an image problem going into these negotiations.”
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