One hundred and fifty years ago, President Abraham Lincoln issued the Emancipation Proclamation. In retrospect, it seems to have been somewhat more important than whatever the Senate was doing last night. While you probably want to know what is in the Senate deal, it’s important to remember that it isn’t law until the House passes it and the president signs it. One thing I don’t want to hear a lot of whining about is the $400,000/$450,000 top marginal rate. We are talking about a 4.6% tax cut on $250,000 of income, which amounts to $10,500. When you consider that Obama exchanged that for an extension of unemployment insurance and a whole host of tax credits that affect the middle class and working poor, it’s not a big concession at all. What’s more difficult to swallow is that the capital gains and dividends rate only went up to 20%. It’s a hike on top earners, but not enough of a hike for my tastes. On the other hand, the rich will have to deal with a Personal Exemption Phaseout (PEP) set at $250,000 and an itemized deduction limitation (Pease) set to $300,000. That is where Mitt Romney will feel the pinch. The deal also extends the Farm Bill, which avoids a massive spike in the price of milk. It permanently fixes the problem with the Alternative Minimum Tax not being indexed to inflation, and it solves the so-called Doc Fix for Medicare compensation to physicians (a long-time headache).
The Republicans think they can make another go of hostage-taking during the debate over the debt ceiling, but I discussed yesterday why the White House is not overly concerned about that. In any case, the deal establishes that a quarter of the cost of extending the sequester for two months will come from defense spending and that half will come from new revenues from a change in the tax-deferral of individual retirement accounts.
Please keep in mind that all but seven Republican senators just voted to raise taxes (the first Republicans to do so in over twenty years). The Republican holdouts were Chuck Grassley of Iowa, Mike Lee of Utah, Rand Paul of Kentucky, Marco Rubio of Florida, and Richard Shelby of Alabama (who voted against), and Mark Kirk of Illinois and Jim DeMint of South Carolina (who didn’t vote). That means that 40 Republican senators (minus those who are retiring) will have to defend their vote to raise taxes when facing reelection. We’ll see how many follow suit in the House.
When judging the merits of this deal, it is important to keep in mind all the people on the margins of our society who will not be paying eight dollars for a gallon of milk or face losing their unemployment check or the loss of their child tax credit or their college loan tax credit. Keep in mind that the president won an extension of tax credits for clean energy. Even if taxes did not go up as much as they should on the rich, they will pay more in income, capital gains, and dividend taxes, while losing significant opportunities to create tax write-offs for themselves through charitable giving. The Estate Tax also went up modestly.
Let’s see if Boehner can do his job.
