Whether to extend all tax cuts or only tax cuts on incomes up to $250,000 has been a key sticking point, with Republicans resisting raising wealthier earners’ taxes. When asked what income levels House and Senate Republicans are likely to approve as the cutoff for tax-cut extensions, Graham said on Fox that Republicans know “the votes are there for $400,000 or $500,000” among Democrats.
Schumer said on ABC that there is bipartisan agreement to patch the alternative minimum tax, adjust the Medicare payment for doctors and extend some business and middle-class taxes, while disagreements remain over how far to extend tax cuts on incomes above $250,000, extending unemployment benefits and using revenue increases to pay down automatic spending cuts, among other provisions.
In the event the Senate can’t reach a compromise on all of those issues, Obama has asked Reid to ready a bare-bones bill for a vote by Dec. 31 that extends unemployment benefits and tax cuts on family incomes up to $250,000.
In that scenario, Obama said, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise also needs approval by the House of Representatives.
Obama said if Republicans agree to raise taxes on wealthy Americans, the revenue would be “sufficient to turn off” the sequester provisions of the so-called fiscal cliff, stopping automatic military spending cuts from going into effect -- a sticking point for many Republicans.
Graham, a member of the Senate Armed Services Committee, said he had discussed the impact of the spending cuts on the U.S. military with Defense Secretary Leon Panetta last night and was told that it would mean 800,000 layoff notices at the beginning of the year. The result would be destroying “the finest military in the world at the time we need it the most,” he said.
Tax policy remains the most stubborn divide in the dispute.
Republicans have resisted rate increases for any income level, maintaining that such a move would hurt the economy and hinder job creation -- especially by businesses that pay their taxes on their owners’ individual returns.
While the economy has shown resilience, politicians are wary of reactions by the public, employers and the markets if a deal isn’t reached by the Jan. 1 deadline.
Failure to address the expiring tax breaks, enacted under President George W. Bush, would mean heavier burdens on taxpayers during the coming filing season, on their regular paychecks and their 2013 tax bills. The nonpartisan Tax Policy Center in Washington estimates the average effect per taxpayer at $3,446 for 2013 if Congress does nothing.
Any last-minute deal wasn’t expected to address a debt ceiling agreement, making the limit on U.S. borrowing authority the next major issue forcing a fiscal debate. The government will hit the $16.4 trillion limit tomorrow, and the Treasury Department will begin using so-called extraordinary measures to finance about $200 billion of deficits into 2013. That would typically be enough to last about two months.