Fiscal Cliff Negotiations Begin

It appears that round one of the Fiscal Cliff negotiations have begun. Lets take a moment to find out what the two sides, Obama and Boehner, have on the table so far. Remember, these negotiations are part chess match, part theater, all played out on the national stage. Both sides must balance carefully the need for compromise and the willingness of their respective bases to accept the deal. This is not an easy task according to The Economist:

“Raising tax rates is unacceptable,” John Boehner, the Speaker of the House of Representatives, declared on November 8th. The next day Mr Obama said “I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren’t asked to pay a dime more in taxes.”

Optimists, however, took note of what the men did not say: Mr Boehner did not rule out raising tax revenues. Mr Obama did not explicitly insist that the two top income tax rates, now 33% and 35%, return to 35% and 39.6%, as they are scheduled to do when George W. Bush’s tax cuts expire at the end of this year.

A possible loophole for the Republican’s ideological purity on taxes is, well, loopholes:

One way this [revenue increases] could be done is to target deductions that primarily benefit the rich. During the election campaign, Mitt Romney proposed paying for big marginal rate cuts by setting a cap on total deductions. The Tax Policy Centre, a think-tank, reckons a cap of $50,000 would raise $749 billion over ten years, comparable to the $800 billion that Mr Boehner entertained during failed negotiations with Mr Obama in 2011. Importantly, this fix would make the tax system much more progressive: 80% of the additional money would come from the top 1% of earners. This has helped draw interest from some Democrats.




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