- New Obamacare taxes would come into effect.
- The Alternative Minimum Tax would return to full strength.
- The Bush tax cuts would expire.
- The payroll tax cut would expire.
On the other hand, even if Congress does not reach a deal to avoid the cliff, I expect a minor deal to avoid the AMT. After all, Congress has enacted one-year patches to the AMT every year for more than a decade, under both Republican and Democratic Congresses, as well as under the split control we've seen since 2010. This year should be no different.
On the Bush tax cuts, Obama was reelected after campaigning to raise taxes on the wealthy. If no deal is reached, Obama gets his wish; the Bush cuts expire and taxes are raised on the wealthy (and everyone else). The Republicans really don't have any leverage on this issue, so I expect any deal would only keep the Bush cuts for those below some income level, probably $200k or $250k.
The real uncertainty is the payroll tax cut. Normally, I would expect Democrats to abhor the cut on the grounds that it undermines Social Security. Republicans should celebrate it, not only as a tax cut, but because it undermines a massive entrenched entitlement. And yet, in some sleight of hand I still haven't figured out, Obama got the Republicans to oppose (and Democrats to support) a tax cut on every worker in the country. Now that the election is over, will the parties stick to these flipped roles, or revert to their principles? Or will the payroll tax cut expire with no one paying attention?
What Republicans Should Do
Whatever happens with the rest of the fiscal cliff, the rich (and people who work for the rich) are going to get hosed. Obama will probably get his way on the Bush tax cuts, and many of the Obamacare taxes are also aimed at the rich. Health costs are also going to go up, but I think the smart insurance companies have already raised their rates to compensate. There may not be a noticeable increase in premiums because the increase has already happened.
Given this, Republicans need to refocus on what good they can still do. Taxes are going up, and with Obama's reelection, that was inevitable. But if Republicans are smart and tactful, they can still keep taxes low for most of us. Give Obama the tax hike on the rich, since that will happen even with no deal, but secure the payroll tax cut and the Bush cuts for the non-rich in exchange. Obama himself is campaigning for the latter, so this should be easy to do, if Republicans are willing to do it.
I guess I don't really see that as much of an "exchange," since it's all things Obama wants anyway (I haven't figured out that sleight of hand either). If some tax hikes are inevitable, it would be good to try to "exchange" them for some spending cuts. Hard to know what kinds of leverages exist though.
ReplyDeleteMaybe I'm being too partisan, but I'm not convinced Obama actually wants the non-rich tax cuts. He wants to raise revenue with a minimum of spending cuts, which the current fiscal cliff accomplishes. Taxes will be raised immediately, while most spending cuts are put off for future years, or aren't cuts at all, merely slower increases than previous plans. The #my2k campaign allows him to raise taxes now, raise spending later when no one's looking, and still blame Republicans for it.
ReplyDeleteBut I hope I'm wrong. If we can get all those tax cuts plus real spending cuts, that would be a great deal.