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Kimberly Amadeo

Compare Fiscal Cliff Proposals

By December 6, 2012

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As of yesterday, here's the latest offers from House Speaker Boehner and President Obama to avoid the fiscal cliff. They're actually not too far off from each other.

First, compare the two parties' current positions on the four tax increases and two spending cuts included in the cliff. (Savings or costs in parentheses are an annual average.)

  1. Bush tax cuts - R: Eliminate mortgage and charity deduction ($80 billion). D: Don't extend for incomes above $250,000. Both: Extend for those earning below $250,000. Maybe OK to raise rates to something less than 39% for household incomes above $250,000.
  2. Alternative minimum tax - D: Extend patch. R: Probably yes (they do every year).
  3. Obamacare taxes - D: Keep as is. R: Repeal Obamacare (although they realize that horse has left the barn.)
  4. Payroll tax cut - D: Extend for one more year ($95 billion). R: Have opposed, but may let slide for a year.
  5. Extended unemployment benefits - D: Extend for one more year ($30 billion). R: Have opposed in the past, but may let slide for a year.
  6. Sequestration - Both: No.

Second, here's their positions on additional stuff that has nothing to do with the cliff specifics, but are thrown into negotiations to further stimulate the economy or reduce the debt.

  • Build roads - D: ($50 billion). R: No.
  • Tax cuts for businesses - D: Extend tax acceleration for depreciation. ($25 billion). Extend research and development tax credit. R: Probably yes.
  • Refinance mortgage incentives  - D: Yes. R: No.
  • Cut Medicare and Medicaid - R: Change cost of living adjustment formula or COLA ($20 billion). Other unspecified reforms ($60 billion). D: Maybe change cost of living formula and extend eligibility to 67. Both: Extend "doc fix" to prevent a 27% decrease in payment reimbursement.
  • Unspecified non-defense discretionary spending cuts - R: ($60 billion). D: Need more specifics before commenting. (Source: CNN Money, Obama Plan Has $200 Billion in Boosters, December 4, 2012; CNN, House GOP Offers Plan to Avoid Fiscal Cliff, December 4, 2012)

What It Means to You

Right now, it seems the two sides will never come together because their philosophies are so different. However, both are playing to their constituents. They will probably come into agreement on most items, as detailed above.

The real crux in negotiations is how much more "rich" people will pay (probably through fewer deductions and a slight increase in the tax rate), and how much Medicare benefits will be cut (probably through a change in COLA).

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December 11, 2012 at 11:24 am
(1) Cyborg1939 says:

Nicely done. Best précis to date that I have seen. What a sad commentary on our country at this point in time. From here on we slide downward to becoming a second rate country at best. Pathetic. Happy Holidays to all.

December 11, 2012 at 3:19 pm
(2) Chan says:

See American people are only telling that all public in US does not have any confidence in bringing back the healthy economy and everybody is telling that from here on wards the country will go downward and hope it will not be liike europe to the bankruptcy level.

December 12, 2012 at 9:22 am
(3) useconomy says:

@ Cyborg1939 – Thanks for the compliment. I think it all boils down to some kind of tax increase for incomes above $250,000 and some kind of cut in aid to families with dependent children (aka welfare) or other program for non-voting, low-income families. Neither one is good for economic growth AT THIS TIME. However, just a resolution of the fiscal cliff uncertainty will boost the economy. As you said, what a mess. Fortunately, the U.S. economy is so robust that it will rebound.

@ Chan – The U.S. will rebound. We have several advantages over Europe, including a single political system, the ability to print as much money as we need, and a creatively aggressive central bank.


December 26, 2012 at 2:05 am
(4) ar says:

The “ability to print as much money as we need” just enables us to be wildly irresponsible. And having a “creatively aggressive” central bank just gets us there faster. A creatively aggressive crack addict with the ability to print money is not what I would consider good news.

December 26, 2012 at 2:24 pm
(5) Kimberly says:

In the long run, I agree. At some point the Fed needs to rein it in. Otherwise, we could experience a depressed dollar and inflation once the economy recovers.

However, if the fiscal cliff isn’t resolved, then you will see some severe contractionary fiscal policy. Fortunately, the Fed can offset that somewhat by printing money. That’s good for the short run.

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