Fiscal Cliff, New Year’s Eve : Democrats, Biden – ‘We Won The Election, Let’s Surrender,’ Progressive Push Needed

Michael Matthew Bloomer,  December 31, 2012

Fiscal Cliff, New Year’s Eve : Democrats, Biden – ‘We Won The Election,
Let’s Surrender.’ Progressive Push Needed

I awakened to find this on my computer screen, courtesy of the Washington Post:

Vice President Joseph Biden and Sen. Mitch McConnell were locked in urgent talks late Sunday over the “fiscal cliff” after Democrats offered several significant concessions on taxes, including a proposal to raise rates only on earnings over $450,000 a year.

With a New Year’s Eve deadline hours away, Democrats abandoned their earlier demand to raise tax rates on household income over $250,000 a year, as President Obama vowed during the recent presidential campaign.

They also relented on the politically sensitive issue of the estate tax, according to a detailed account of the Democratic offer obtained by The Post, promising to stage a vote in the Senate that would guarantee that taxes on inherited estates remain at their current low levels, a key GOP demand.

Still, McConnell (R-Ky.) was holding out to set the income threshold for tax increases even higher, at $550,000, according to people close to the talks in both parties. And he was protesting a Democratic proposal to raise taxes on investment profits for households with income above $250,000.

The two sides were also sharply at odds over automatic spending cuts set to decimate budgets at the Pentagon and other federal agencies next month. Democrats were seeking to delay the cuts, known as the “sequester,” until 2015, without identifying other savings to compensate. They were also pressing to extend unemployment benefits, farm subsidies and Medicare payments to doctors, again without offsetting cuts as Republicans demand.¹

Is it possible that after a convincing win in the 2012 election, and polls showing broad agreement among Americans that taxes must rise for wealthier individuals and families that the Democratic party en masse is about to give away the farm for a bushel of corn? Offhand, I’d say yes. If this turn away from the campaign for a “balanced approach” to averting the fiscal cliff is a ploy calculated to cause Republicans to appear as stone walls against compromise, then fine, perhaps that might be good public relations move for Democrats to make. Doing so would thereby lay whatever blame accrues for leaping over the fiscal cliff precisely where it belongs, at the collective feet of the party that, in principle and effect, represents but one in every 10,000 Americans. I thought that had been settled by the election results, but it’s always good to continue to put the GOP in positions where their intransigence is in full, so to speak.

Perhaps that’s what’s afoot. Perhaps Democrats’ secret agenda is to go over the cliff, and in doing so be able to then go to the voters and say, “Look at all the concessions we made, all the compromises,” etc., etc., “those nasty Republicans,” etc. etc. I simply cannot see any other reason to have awaked this a.m. to such a story as the one above, a story awash in Democratic cowardice. And with Joe Biden now apparently at the helm? Where’s the Joe Biden of the Vice Presidential debate? Who won the election?

Here’s how bad this is. Giving up on the $250,000 income threshold for increased tax rates after the expiration of the Bush tax cuts was floated weeks ago without need by our otherwise resolute President who at that time offered a $400,000 threshold. Just the other day, Senate Democrats were still speaking of holding to a $250,000 threshold, in effect, bypassing President Obama’s miscalculated $400,000 offer as if it did not exist. Enter Joe Biden overnight. This morning we’re suddenly at a $450,000 threshold for joint filers? And we well know this is simply what many tightly label Kabuki theater ritual; the final figure for the income threshold – should a “final” anything be achieved – will more than likely be at the $500,000 level, or thereabouts.

Overnight, the administration via Joe Biden and Senate Democrats gave up some $200,000 of income that would be subject to tax increases in 2013. To what end? To seal their 2012 electoral victory? To let Americans know that they hear them? If I haven’t been clear: this is a disgrace, reminiscent of the 2011 debacle.

The Tax Policy Center (TPC) has a number of data displays that estimates the effect of different scenarios for the income thresholds.² I extrapolated some of this data and did a quick and dirty analysis of the federal revenue loss that the GOP threshold ($450,000 joint filers) versus the President’s original threshold offer ($250,000). Since events are unfolding quickly, and since the tax increases estimated below will depend upon other tax-related factors, the conclusions are speculative. For example, in their data TPC assumes, for example, that the capital gains and dividend tax bite will be 20%; that the middle class unfriendly Alternative Miimum Tax AMT will be fixed (not presently being supported by the GOP, according to reports); and that the estate tax rate and exclusion amount will stay as is. These and other issues may or may not come out of the Senate, if indeed, anything does.

With the caveat, here are some interesting conclusions:

• There are approximately 4, 750,000 so-called “tax units” (individuals, families,heads of household) in the group earning pre-tax income of $200,000 to $500,000 per year, and that group comprises around 3% of all tax units (but note that not all of those group members would be subject to the increase, only those with AGI’s of more than $250,000 would be affected);
• TPC estimates that approximately 1,500,000 tax units have adjusted gross incomes above $250,000/year. That means that around 1.5 million would be hit with a 2013 tax increase as they move into higher average post-Bush tax cut era tax bracket of around 26%;
• Those with adjusted gross incomes from $250,000 to $500,000 would see taxes increase by $4,500 on average.

So, by giving up the $250,ooo benchmark, as Biden and Reid apparently did last night, Democrats have potentially reduced federal revenues by a around seven billion dollars. For what?

Apparently nothing. This tax rate benchmark give back to the GOP is in no way a fair give back for their decision yesterday to drop their cranky insistence on the Chained CPI.³ We all know Chained CPI will rear its head again, and soon, when the debt limit dance begins in earnest. In fact, Democrats now find themselves – predictably – threatened by Senate Minority Leader Mitch McConnell’s reported demand for an even higher tax rate increase threshold – $450,000 for single filers and $550,000 for married filers! Should Biden be surprised? What’s more, the GOP apparently refuses to extend unemployment benefits for year, although I’ve heard no reports of the amount of time they suggest. As always, they apparently won on the estate tax; it will remain unscathed, unchanged. There will be no agreement to permit the debt ceiling to be raised as part of this yet unwritten agreement. Whither capital gains and dividend rate increases? Who knows? Medicare doc-fix? In the wind. Payroll tax holiday extension? Surely kaput. Did we really have an election six weeks ago? I don’t recall, but it seems the Republicans won.

So, what emerges from the Senate tonight, if anything, will be a stopgap measure, of course. And it’s looking to be a defeat for the tax equity principles Democrats campaigned on just two months ago.

Progressives need to step forward in the House and, in a true marriage of convenience, join with the anti-tax increase Tea Party true believers to vote thumbs down on a fatally flawed Senate bill.

Imagine! Progressives and wingnuts holding hands and singing Kumbaya Lord, Kumbaya . . .

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