Obama outlines plan to avert tax increases that would otherwise take hold tomorrow
Flanked by dozens of middle class Americans, President Barack Obama said in a press conference this afternoon that Congress is close to finalizing an agreement that would prevent the federal government from going over the fiscal cliff and raising taxes on "98% of middle-income Americans starting tomorrow.
"Today, it appears that an agreement to prevent this hike is within sight. But it’s not done," Obama emphasized, urging the public to keep pressure on lawmakers to pass legislation today. Obama joked that he would he wouldn’t be going anywhere on New Year’s Eve and would instead stay home.
Senate Minority Leader Mitch McConnell (R-Tenn), speaking after the president's press conference, confirmed that the parties are "very, very close" to a deal. He said that he agreed with the president on the importance of not raising taxes on middle class Americans. He also said that reaching compromise on a proposal had been very difficult.
The deal taking shape, according to numerous press reports, would raises taxes on households earning $450,000 or more. This is roughly double the threshold -- $200,000 for individuals and $250,000 for families -– that Obama pledged to set during his campaign. Taxes on households making $450,000 or more would rise from 35% to 39.6%, where they were during the Clinton Administration.
Taxes would rise on the wealthiest Americans, Obama said, for the first time in two decades.
The Associated Press reported that the threshold for estate taxes would rise to $5 million, a significant concession to House Republicans and Senate Democrats representing farm interests. Estates would be taxed at 40% after the first $5 million for an individual and $10 million for a couple.
Democrats negotiated the continuation of several programs in return for a higher tax increase threshold. Obama said the compromise would extend tax credits for families with children, tuition tax credits, tax incentives for renewable energy development, and unemployment insurance for another year for "2 million people looking for jobs."
The deal would delay the sequester and reportedly replace it with $24 billion in spending cuts for two months. Political leaders are still negotiating where the cuts would occur. Obama said he would have preferred to negotiate a deal with a "grand plan" for reducing the deficit but instead the administration and Congress will have to proceed in steps.
The President made it clear that any future deficit-reduction need to be "balanced" and include provisions that raise revenue as well as spending cuts. Obama said he’s willing to find savings in Medicare. But he said that reform needs to go "hand in hand with reforming tax code, so that wealthy individuals and corporations don’t take advantage of loopholes."
The final comprise may win enough votes to pass the Senate and the U.S. House of Representatives. But it’s unlikely to gain approval from the most conservative Republicans who don’t want to raise taxes on anyone. Also, it may not be supported by the most liberal Democrats.
"We're going to lock in forever the idea that $450,000 a year is middle class in America,'' said Sen. Tom Harkin (D-Iowa) in a speech on the Senate floor this weekend. "The direction they are heading in is absolutely the wrong direction for our country.''
In the meantime, the House may take up legislation this afternoon that extends the current farm bill for an additional two months to avert the so-called Milk Cliff. The leadership of the House and Senate ag committees negotiated a deal over the weekend that would prevent milk prices from rising in the absence of a farm bill.
Unless Congress passes legislation today, more than $500 billion in 2013 tax hikes will take hold tomorrow. Also, $109 billion in cuts will be taken from both defense and domestic programs, exluding food stamps.
The Congressional Budget Office has warned that the combined impact of the tax hikes and spending cuts would be enough to bring on a recession.