Senate deals on fiscal cliff, House action pending

The Senate fiscal cliff curb deal is done, passed in the wee hours of New Year's Day, 89 to 8. Democrats Thomas R. Carper (DE), Michael Bennet (CO), and Tom Harkin (IA), who said the "White House had given away too much in the compromise," voted no. The deal does give away the leverage President Obama had on tax cuts, doesn't resolve the looming debt ceiling fight, and makes the Bush tax cuts permanent on incomes up to $400,000 for individuals, $450,000 for couples. In return, Obama got an extension of unemployment benefits and five-year extensions of the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit.

Here's a run-down of what else is there:

• The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else. (Clinton-era rates were 20 percent for capital gains and taxed dividends as ordinary income, with a top rate of 39.6 percent.)
• The estate tax will be set at 40 percent for those at the $450,000/$400,000 threshold, with a $5 million exemption. That threshold will be indexed to inflation, as a concession to Republicans and some Democrats in rural areas like Sen. Max Baucus (D-Mt.).
• The sequester will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they're moved over. [...]
• The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class. [...]
• Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000.
• The full package of temporary business tax breaks'benefiting everything from R&D and wind energy to race-car track owners'will be extended for another year.
• Scheduled cuts to doctors under Medicare would be avoided for a year through spending cuts that haven't been specified.

The bill also includes a nine-month farm bill extension, cleaning up after another House Republican fiasco resulting from its failure to pass a farm bill. This extension would avert what's been dubbed the "milk cliff," a reversion in price supports for dairy farmers to a 1948 law that could have resulted in milk prices to consumers more than doubling.

What it doesn't do, and what will immediately hit millions of wage earners, is extend or replace the payroll tax cut with an equivalent tax break. That means that all wage earners will see an immediate hit in their paychecks, with a two percent payroll tax increase. That's a two percent tax hike on 98 percent of the nation, a larger increase by percentage of income than many in the top two percent will hit. A reinstatement of the Making Work Pay tax cut that was enacted for a year under the stimulus bill should have been included as a replacement for the payroll tax cut to avoid this hit on the middle class. It wasn't.

That, the fact that the Democrats had to swallow just a two-month delay in the spending cuts mandated by the Budget Control Act'they wanted a delay of a year'and the fact that renegotiating the sequester will coincide with renegotiating the debt ceiling sets up another massive fight. That massive fight will undoubtedly once again threaten Social Security and Medicare benefits because every debt and deficit fight now has to threaten them. For all these reasons, it's a pretty crappy deal for progressives.

The House Republican conference will meet at 1:00 pm ET, and a vote today is possible according the House staff. Having learned his lesson through his "Plan B" debacle, in which he completely failed to lead his caucus, House Speaker John Boehner is making no promises, with leadership saying it would "honor its commitment to consider the Senate agreement," but that "decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members'and the American people'have been able to review the legislation."