Dems fight over 3 percent of the tax deal
The Senate is about to pass the full tax cut 鈥渃ompromise,鈥� but House Democrats are trying to hold out for a more fiscally responsible option. From the (emphasis added):
The strong Senate vote also appeared to have weakened resolve among House Democrats to block the measure when it comes to the floor this week. After meeting for two hours with rank-and-file lawmakers late Tuesday, senior Democrats said the House is likely to stage the terms of a revived estate tax that many Democrats view as overly generous to the wealthy.
to exempt individual estates worth as much as $5 million from taxation, senior Democrats said they would press to lower the threshold to $3.5 million. They also want to impose a stiffer tax on larger estates, by setting the rate at 45 percent rather than the 35 percent demanded by Republicans and agreed to by Obama.
Those are the same terms that were in effect in 2009. The estate tax expired for the 2010 tax year but is set to spring back to life next month with much tougher provisions. House Democrats said their alternative would hit only about 6,600 of the nation鈥檚 wealthiest households while raising an additional $26 billion over the next two years compared with the Obama-GOP compromise - money that could be used to reduce the soaring national debt.
鈥淭here鈥檚 a real debate here between Republican proponents of tax cuts for the very richest Americans and our argument that that鈥檚 fiscally irresponsible and unfair to future generations,鈥� said Rep. Peter Welch (D-Vt.), who was leading an effort to strip the tax package of what he called 鈥渋ndiscriminate giveaways鈥� for the wealthy.
I agree that we shouldn鈥檛 need to deficit spend that additional $26 billion, which would benefit such a tiny fraction of the richest Americans who don鈥檛 exactly need any help鈥搕o spend or to save or to do whatever. But this is an even more perverse version of President Obama鈥檚 wish to 鈥渟ave鈥� the $700 billion 10-year cost of extending the high-end Bush tax cuts while urging the deficit spending of the $2.2 trillion 10-year cost of extending all the rest of the Bush tax cuts. Note that the $26 billion House Democrats wish to shave from the estate tax cut, for fiscal responsibility鈥檚 sake, is just 3 percent of the cost of the ($858 billion) tax cut deal. It鈥檚 really more about House Dems trying to avoid getting completely shut out from the deal than about them saving the whole deal from fiscal irresponsibility.
What might really make this $858 billion tax cut 鈥渃ompromise鈥� nevertheless 鈥渇iscally responsible鈥�? From the a few days ago (emphasis added):
Two points are worth stressing.
First, there should be no professed 鈥渟ticker shock鈥� regarding the deficit impact of this agreement. Policymakers have always known, or should have known, that continuing current policies would substantially increase projected deficits. This would be true regardless of whether the tax cut extensions were limited to the 鈥渕iddle class鈥� or applied more broadly. If fundamental tax reform is not undertaken soon, the $850 billion price tag of this agreement will be just a small sample of things to come.
Second, the extension of many narrow tax preferences in the Senate鈥檚 legislative version of the agreement runs directly counter to the widely praised recommendations of the President鈥檚 fiscal commission and the Rivlin-Domenici Task Force. Both groups made a strong case that scaling back or eliminating such 鈥渢ax expenditures鈥� could be used to build a more efficient system for revenue collection, lower rates and also raise needed revenue. Ignoring this advice, as the agreement clearly does, is a discouraging signal that business-as-usual in Washington has not yet been altered.
Whether this deal is fiscally responsible will ultimately be determined by what Congress does prior to the expiration dates of its main components. Ideally, these short-term policies will give Congress and the President time to consider fundamental tax reform along with the bi-partisan suggestions from the President鈥檚 fiscal commission for long-term spending restraint.
The sooner we can break out of the box from our current patchwork of tax-cut sunsets and tax expenditures and replace these policies with a more efficient, more permanent, and more responsible tax policy, the easier it will be to break out of the short-termism affecting the rest of the nation鈥檚 fiscal policy.
The outpouring of credible plans from partisans and policy wonks in response to the work of the President鈥檚 commission has made clear that nearly everyone in Washington longs to fundamentally transform the tax code 鈥� making it the most sensible area for the nation鈥檚 leaders to immediately begin our long march towards responsible budget policy.
I remain optimistic that a temporary extension of all of the Bush/Obama tax cuts is better than a permanent extension of any part of them, in increasing our chances that we will 鈥渢rade up鈥� to a better and more fiscally responsible federal tax system in the next couple years.
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