I don’t think we should jump on this fully until we see a full solution. But enough of the usual suspects have signaled that a tax cut deal is imminent, with the same broad contours, that we should take a look at the particulars. Here’s Jon Ward (although others have corroborated):
The deal will extend the current tax levels for two more years, preventing taxes from going up on any income levels, despite the wishes of many liberal Democrats — including Obama — that individuals making more than $200,000 a year and families with more than $250,000 a year in income see their rates go up.
In exchange, Republicans have agreed to extend unemployment insurance benefits for an additional 13 months [...]
Other details include a temporary two percent reduction in payroll taxes to replace Obama’s “Making Work Pay” tax credit from the 2009 stimulus bill, and a compromise on the estate tax, which will be set for two years at 35 percent, with a $5 million exemption amount.
The tax rate for capital gains and dividends will be maintained at 15 percent.
The estate tax solution comes from Sen. Blanche Lincoln, Arkansas Democrat, and Sen. Jon Kyl, Arizona Republican.
So, this is generally what we’ve been expecting, although there are some other tax issues not mentioned here (expanded EITC and child tax credit, some energy taxes, bonus depreciation, the HIRE Act, etc.). But let me expand on what I’ve highlighted in the text.
The $5 million, 35% estate tax is a crime. That’s LOWER than the lowest rate under the Bush estate tax, outside of 2010, when the estate tax disappeared. So Republicans get that restored at the lowest rate in history. Even in this weekend’s aborted tax bill in the Senate, Max Baucus included what has become the default Democratic policy, a return to 2009 rates, with a $3.5 million dollar exemption and a 45% rate. (Personally, I favor just returning to Clinton levels.)
There’s no way on the planet to describe that policy as stimulative. You’re just giving more money to the heirs of the ultra-rich. And the cost is $91 billion more than the Baucus/Democratic plan over 10 years, and hundreds of billions over current law. By linking this extension to the rest of the Bush tax cuts, it ensures they’ll move together practically forever.
Then there’s the capital gains and dividend rates, which will continue to be absurdly low.
So far, only John Conyers has come out and simply said no to this charade. Once the huge concessions on dividend and captial gains rates and especially the estate tax become more well-known, I think more will join Conyers, though if Republicans broadly agree to this I don’t see how it’ll much matter.
…My other thought is how will cutting the payroll tax, instead of just including a Making Work Pay tax credit, impact the finances of Medicare and Social Security? Will this just make them look even worse, or will the money from the payroll tax cut come out of general revenue and be repaid to the trust fund?
UPDATE: Michele Bachmann:
“I don’t know that Republicans would necessarily go along with that vote. That would be a very hard vote to take,” Bachmann said on conservative talker Sean Hannity’s radio show on Monday [...]
“I think we’re back in a conundrum. I think the compromise would be extending the rates for two years and not permanently, but not tying it to massive spending,” she said. “We cannot add on something like a year of unemployment benefits.”
So there will be a Tea Party dead-ender caucus. Will it be enough to scuttle the whole deal?