Five things you need to know about the deal cut by the White House over the Holidays to avert the “Fiscal Cliff”

1.     The Bush tax cuts that were finally set to expire are now permanent.

The Bush tax cuts were set to expire on Jan. 1, 2013. President Obama and many Democrats won election in 2012 based on a promise to roll back the Bush tax cuts for the wealthiest 2% of Americans making $250,000 and above. 

Had Congress done nothing, the Bush tax cuts for all Americans would simply have expired at midnight on December 31st. 

But the deal that passed made the Bush tax cuts permanent for households making up to $450,000. This represents a $9,200 tax cut for people making more than $35,000 a month.² 

Now, it will take an affirmative act of Congress to actually raise taxes to undo this hand out to some of the richest Americans (an impossibility with the current Congress).

2.     The estate tax exemption included in the deal is a giveaway to the country’s wealthiest families. 

As Los Angeles Times business columnist Michael Hiltzik explains:³ 

“There's no purer giveaway to the wealthy than this. The final deal raises the tax to 40% from 35% on estates over $10 million. (That figure is for couples, whose estates are each entitled to a $5-million exemption upon their deaths.) The alternative was to return to 2009 law, which set the tax at 45% on couples' estates more than $7 million.

Who pays the estate tax? In 2011, about 1,800 taxpayers died leaving estates of more than $10 million. Their average estate was somewhere from $30 million to $40 million. Their heirs cashed in on some of the most nimble tax planning on Earth: Although the statutory top rate was 35%, the average rate on estates of even $20 million-plus (the average gross value of which was $65 million) came to only 16.2%.”

3.     The payroll tax cut expiration raises taxes on the middle and working classes

For the last two years, the payroll tax that wage earners pay on their first $113,000 of income to fund Social Security was temporarily reduced by two percentage points.

The Payroll Tax reduction was a form of economic stimulus that helped put more money in the pockets of working Americans. 

Instead, the payroll tax holiday was allowed to end abruptly and without anything to replace it, which will result in a jarring two percent reduction in the take-home pay of most workers.

Since the payroll tax only applies to the first $113,000 in income, people who make more than that will see a relatively smaller tax increase. And combined with the now-permanent tax cuts for the wealthy, some of the richest Americans will see a net reduction in the taxes they owe whereas working and middle class workers will see a tax increase.

4.     The deficit isn't really the problem.

The deficit hysteria that has become part of the conventional wisdom in D.C. is really just a way for wealthy elites and corporate interests (and their allies on Capitol Hill) to push for austerity and end programs that benefit most Americans.

The U.S. is the richest country in the history of the world and yet we're told by the deficit scolds that we're too poor to fund education or the FDA or pay for food stamps to keep Americans from going hungry.

Meanwhile, the same politicians who plead poverty want to give away billions in unneeded corporate welfare, spend more money than ever to fund the biggest military in the world and cut taxes on the extremely rich. Not to mention the fact that the cost of borrowing is at historic lows (For more on this topic read Dean Baker's piece "Look Beyond the Fiscal Cliff"⁴).

5.     The debt ceiling wasn't addressed. In two months, Republicans will take hostages again, and we'll be in the fight of our lives to protect Social Security, Medicare and Medicaid benefits.

The existence of the so-called "Fiscal Cliff" was the result of a terrible deal President Obama cut the last time Congress had to raise the debt ceiling. This set up a constellation of automatic tax increases and spending cuts that Congress was feverishly trying to avoid, and which paved the way to the deal.

But with the Bush tax cuts (one of the Republicans' top priorities) now off the table, we'll spend the next few months dealing with the automatic across-the-board spending cuts (known as the "sequester"), the end of the continuing resolution on the budget that funds the government, and the need once again to raise the debt ceiling.

All of these provide the Republicans with opportunities for hostage-taking, and we know they have their sights set on cutting Social Security, Medicare and Medicaid benefits.

As Republican Congressman John Fleming told the Huffington Post: "We still have more opportunities. We've got the debt ceiling coming, sequestration. So we're going to get taxes off the table. The president can't say, 'We've got to raise taxes first before we get to spending cuts.' We will have already done that. Now the topic will be spending cuts, from this point out."⁵

There were some positive things in the bill that was passed:

1.     There was no negative change in the way cost of living increases to Social Security benefits are calculated.

2.     Unemployment benefits were extended for over two million Americans who are still looking for work.

3.     The Child Tax Credit and the Earned Income Tax Credit were extended for the next five years.

4.     The Wind Production Tax Credit was extended for another year.

However, overall, as Rep. Jim Moran said, "We're going to look back on this night and regret it."⁶ And even Majority Leader Harry Reid tossed concessions suggested by the White House into his Senate fireplace.⁷ That’s why Reid was replaced in negotiations with Republican Minority Leader Mitch McConnell by Vice President Joe Biden who struck the final deal. 

Jim Moran was joined by seven other members of the Congressional Progressive Caucus in voting no on making the Bush tax cuts permanent for Americans making over $250,000 a year. 

They were: Rep. Rosa DeLauro, Rep. Pete DeFazio, Rep. Earl Blumenauer, Rep. Xavier Becerra, Rep. Jim McDermott, Rep. Brad Miller and Rep. Suzanne Bonamici. In the Senate, Tom Harkin also stood up and alone on the floor of the Senate explained that permanent extension of the Bush tax cuts was an absolute deal breaker.

These progressive legislators deserve our thanks.

Click here to thank the progressives in the House and Senate who voted to hold out for a better deal and opposed making the Bush tax cuts permanent.

From a CREDO Action from Working Assets

1. Leading House Republican says Obama's deal gave away all his leverage, PCCC's Daily Change, 1/1/13
2. The 'fiscal cliff' con game, Michael Hiltzik, LA Times, 1/2/13
3. ibid.
4. Look beyond the fiscal cliff, Dean Baker, CNN.com, 1/2/13
5. Fiscal Cliff Vote: House Republicans Caving, Senate Deal Coming to a Vote, Huffington Post, 1/3/12
6. Rep. Jim Moran on Fiscal Deal: 'We're going to look back on this night and regret it', PCCC's Daily Change, 1/2/13
7. Harry Reid Threw Obama Fiscal Cliff Proposal Into Burning Fireplace, Huffington Post, 1/2/13