After Speaker Boehner announced on Friday that he was now open to marginal-tax-rate increases on income over $1 million, the state of proposals is the following, via Politico:
Boehner jump-started the talks with a proposal Friday to boost marginal tax rates on income over $1 million, in what was a significant departure from his party’s no-new-taxes plank.
Democrats described the movement on rates as “progress,” but cautioned that a deal is not imminent because of the high income threshold and proposed cuts to Medicare, including raising the eligibility age from 65 to 67. Obama wants tax rates to rise on family income above $250,000 a year, and he has not publicly embraced cuts to Medicare beneficiaries in the latest round of talks.
Boehner’s latest offer entails roughly $440 billion in new revenue over the next decade by allowing tax rates to increase to 39.6 percent on $1 million-plus annual incomes. A further $500 billion would come from tax reform carried out by Congress next year, including limiting deductions for the wealthy and closing loopholes. An additional $60 billion would come from a change in how entitlement benefits are calculated.
Thus, as was generally considered inevitable, Boehner has given up a substantial amount of ground on the tax issue. The Journal reports that, on the spending side, “Mr. Boehner is calling for at least $1 trillion in spending cuts to come in part from entitlement programs such as Medicare.”
At least one very difficult sticking point remains that Roll Call reports is part of Boehner’s plan: raising the Medicare eligibility age to 67. That reform is something to which most Democrats appear very resistant, while it doesn’t pack much of a punch in budgetary savings. The Kaiser Family Foundation predicts that net federal spending would be reduced by $5.7 billion in 2014, a basically paltry number — that said, the savings do grow significantly in the out years. There are plenty of good reasons to raise the Medicare eligibility age (see Avik Roy’s discussion of the issue on Forbes from last week), and I’m inclined to think it would be worth doing, but it is an odd top priority for Republicans seeking spending cuts to balance out the tax increases to which they’re gradually acquiescing.
One particularly bizarre contention from the Roll Call story is Democrats’ complaint that “Democrats also say the Boehner offer on tax rates for the highest earners falls well short of deficit reduction targets. A senior Democratic aide said the main problem with Boehner’s proposal on rates is that it would raise about $200 billion, not enough to meet Obama’s target for raising a total of $1.4 trillion in new tax revenue as part of a debt deals [sic].” Obviously it is fair to point out that Boehner’s rate-increase proposal doesn’t raise what the president’s does, but it does raise a lot, and nowhere near what the “senior Democratic aide” claims. The liberal Center on Budget and Policy Priorities predicts that letting the Bush tax cuts expire only on income over $1 million a year would raise $463 billion over ten years (a number roughly in line with what Boehner’s said it would raise).
Conservatives looking for any bit of good news might take this to heart: Given the political difficulty of closing loopholes, the “tax increases always happen, spending cuts don’t” dictum will turn out differently this time; there’s every reason to be skeptical that Congress will decide to close enough loopholes in 2013 to raise $500 billion in more revenue via tax reform. (The president has proposed capping the value of itemized deductions at 28 percent of income, which the Tax Policy Center estimates would raise $164 billion over ten years; his budget’s more comprehensive proposal to limit exclusions and deductions would, according to his administration, raise $564 billion.)
The payroll-tax cut and unemployment insurance, two other big chunks of the fiscal cliff, have, it seems, been abandoned by both sides. Boehner and Obama reportedly met at the White House for 45 minutes today, though it’s unclear if that has changed the state of play from what it was over the weekend.