Posted Monday, Dec. 31, 2012, at 9:10 PM
Photograph by Chip Somodevilla/Getty Images.
Paul Kane reports that the White House and Senate Republicans have reached a deal, with Obama giving in to GOP demands on the estate tax. He writes that "a vote on the package could be held by 10:30 p.m., beating a midnight deadline" while "The House will begin considering the bill tomorrow, with final passage in the next day or two."
It's worth taking a minute to savor the full-on absurdity of this timing. Why have many people had their New Year's Eve ruined? Well, because this is perfect timing. The new Congress begins on Jan. 3. But the new tax baseline begins on Jan. 1. That means that if a bill passes the Senate on Dec. 31, the House has two days under the new budget baseline before the lame-duck session ends and Senate legislation expires. This lets the Senate pass a bill that Obama says raises taxes (which it does, relative to 2012 law) and then the House will vote on a law that John Boehner can say cuts taxes (which it does, relative to 2013 law) and thus you get a politically magical immaculate tax hike.
The exact terms of the deal remain somewhat unclear, but the basic shape of things is this: Tax rates will return to Clinton-era highs on adjusted gross income above $400,000 for individuals and over $450,000 for couples filing jointly. The top rate on capital gains and dividend income will rise to 20 percent. The PEP and Pease deduction limits will be partially reinstated. The refundable tax credits from the stimulus will be extended for five years. The uncontroversial corporate tax credits will be extended, and so will the more contentious ones for clean energy. There's money for another year of unemployment insurance. Implementation of the sequester cuts are going to be delayed for two months—which means they'll collide with the debt ceiling.
From the viewpoint I outlined on Dec. 13—"Cutting Spending to Obtain Tax Hikes Is Nuts"—this is a decent deal. Relative to what Obama had already agreed to, there are no spending cuts whatsoever in this package. In exchange, he ended up securing much less tax revenue than he was initially looking for. That's an epic defeat for the Pete Peterson and "Fix the Debt" crowd, but even though liberals are disappointed with this, they didn't end up actually losing anything the way they were going to in deals that cut Social Security benefits or raised the Medicare eligibility age. Conservatives, meanwhile, can say that in the face of an objectively unfavorable situation they kept taxes remarbly low and have maintained their leverage to press for further spending cuts in February.
On to the next crisis.