Fiscal Cliff: New Chapter, Same Story

John BoehnerOn Sunday, Speaker of the House John Boehner (R-Ohio) concluded a long and tenuous chapter in the fiscal cliff discussions. Deciding to leave ideological trench warfare behind, Boehner has agreed to accept tax increases on the wealthy and a higher total revenue target as components of a solution to the fiscal cliff. Now it is up to the other side of the aisle to leave their fox holes and approach no man’s land.

The current top tax rate of 35 percent, established through the Bush tax cuts, is set to expire on January 1 as part of the fiscal cliff trigger. Previously, Republicans insisted that the Bush tax cuts remain in effect for everybody, where Democrats wanted to keep the tax cuts only for those who made less than $250,000 per year. This means a tax hike on those making more than $250,000 annually, with the rate moving from 35 percent to 39.6 percent, where it was under the Clinton administration.

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Boehner’s new proposal concedes to the Democratic initiative, keeping tax rates low for the vast majority of Americans while increasing the rate for the country’s top earners. However, his proposed cut-off point is $1 million instead of $250,000. The figure could be seen as a starting point that Democrats will try to negotiate down, but given the magnitude of the concession already it’s unlikely that this number will change very much…

With the offer, Boehner has extended his hand and now it’s time for the President to take a step forward. Boehner’s proposal is predicated on the Democrats offering more cuts to entitlements. To date, Democrats have offered about $400 billion in spending cuts over 10 years, and none of the changes reflect the fundamental reform that Republicans want to see in the healthcare system.

Boehner has also increased his total revenue figure to $1 trillion, another huge step toward the middle ground. The President is calling for $1.4 trillion in revenue hikes, but many think this number is too high, and doesn’t seem obtainable under the new proposed tax hike scheme.

The President is unlikely to approve of Boehner’s proposal in its current form, but the concession is a strong step forward for all parties involved. Now that Republicans have put revenue figures on the table, Democrats will be expected to put entitlement figures on the table. Once there, policymakers can begin real negotiations instead of political sparring.

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