The Most Important Thing Missing from the Proposed Fiscal-Cliff Deal
The payroll tax cut is set to expire, and with it, about a half million jobs in the coming year
Well, it’s about time to say goodbye to the fiscal cliff. But don’t worry if you’re a fan of manufactured crises — Congress has already created a new cliff to replace it, the debt ceiling cliff, that will hit in a few month’s time. The era of perma-emergency is far from over, even if the fiscal cliff might be.
The latest proposal could easily fall apart since it has yet to deal with the sequester cuts, but it looks like Democrats and Republicans are close on a deal when it comes to taxes and stimulus. Here’s how it breaks down.
— Rates rise to 39.6 percent for individuals making $ 400,000 or couples making $ 450,000.
— Capital gains and dividends taxes would rise from 15 to 20 percent — which is really 23.8 percent when you include the Obamacare surtax — for individuals making $ 400,000 or couples making $ 450,000
— Permanently patch the Alternative Minimum Tax (AMT), to prevent increasing numbers of middle-class families from getting hit with the tax each year due to inflation.
— One-year extension of the so-called “doc fix” that prevents Medicare payments to doctors from getting slashed.
— There is no new infrastructure spending and no continuation of the payroll tax cut.
Making Work Pay was the one stimulus tax credit that didn’t survive past 2010. It mimicked the payroll tax cut, except it worked through the income tax, so it didn’t deplete the Social Security Trust Fund. Households got a refundable redit equal to 6.2 percent of earned income, with a maximum credit of $ 400 for singles and $ 800 for couples. Republicans didn’t like it, so the payroll tax cut replaced it in 2010.
If the Democrats want to trade tax revenue for tax credits, as seems to be the case, they should at least hold out for the most stimulative credit out there. Making Work Pay puts more money in the hands of working and genuinely middle-class households — households that are more likely to spend that money, and thus put people back to work.
A fiscal cliff deal that raised revenue from the rich, gave tax credits to the middle-class, and delayed the sequester — along with the no-brainers like extending unemployment insurance, patching the AMT, and doing the doc fix — is a deal both sides could get behind. Democrats would get a bit less revenue than they want, Republicans would give up a few more credits than they want, and everybody would avoid the austerity that nobody wants.
That would be a grand enough bargain.