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A Fiscal-Cliff Primer
The GOP should lay out the stakes.


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Jim Talent

It’s time for a status report on the state of negotiations over the fiscal cliff. Here are some frequently asked questions and answers.

1) Q. What is the fiscal cliff?

A. Under existing law, $494 billion in tax increases are scheduled to go into effect on January 1, 2013. There are three main categories of tax increase that are coming. About a third of the increase will come from ending the Bush tax cuts. Those included across-the-board income-tax cuts, reductions in capital-gains and dividend taxes, a reduction in the marriage penalty, and an increase in the child tax credit. About a quarter of the tax increase will come from ending the payroll-tax cut established as a temporary measure several years ago. About a fifth of the increase will come from ending a “patch” that minimized the effect of the Alternative Minimum Tax on the middle class. There are a number of other smaller tax hikes scheduled to go into effect, including a big increase in the estate tax that will produce only $13 billion in revenue but will destroy a lot of family farms and small businesses.

The cost of getting married, and of dying, is about to go up. For a full discussion, see this report.

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2) Q. How big would this tax increase be?

A. It would be a $500 billion increase in one year. That’s almost as big as the tax increases imposed by Obamacare over a ten-year period.

3) Q. What’s the official position of the Republicans on the scheduled tax increase?

A. They want to avoid raising taxes on anyone.

4) Q. What’s their real position?

A. See the answer to question 3 above.

5) Q. What’s the official position of the Democrats?

A. They want to continue the tax cuts on middle-income taxpayers and to raise tax rates on higher-income taxpayers.

6) Q. What’s their real position?

A. They want as much tax revenue as they can get. They also believe that next year they can reinstate any of the tax provisions they decide they like. So they believe that, by allowing the country to go over the cliff, they will collect a huge amount of new revenue that will relieve the pressure on them to cut spending, while still being able to reenact later a few of the smaller tax benefits that actually appeal to them.

7) Q. Aren’t the Democrats afraid of the political backlash if they allow taxes to go up on everyone?

A. They’ll blame the Republicans.

8) Q. Can they get away with that?

A. They think they can. Read the polls.

9) Q. Don’t the Democrats realize that tax increases will discourage consumer spending, cut small businesses’ investment, kill jobs, and therefore produce nowhere near the revenue projected by their static model of budgeting?

A. Are you kidding?



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