Newly-added very short summary: CED rates are capital gains/estate/dividend tax rates. In the "Fiscal Cliff" deal, the CED rates cost us about $660 billion in revenue versus not addressing them at all in the deal. Keeping Bush tax rates (mostly) for people between $250K and $450K in income only cost us at most around $110 billion by the same accounting. So, I'm considering the CED rates 600% worse than the marginal tax rates.
Were CED rate tax cuts worth it? I don't know, but I use a lot of words below trying to find out.
I've been a lurker who admittedly shows up here far more frequently when there's big stuff going on. So unfortunately there was this thing that caused me to be checking in regularly as 2012 ended and 2013 began. While I certainly was happy to read the diversity of opinions on the deal, I eventually began wondering why I hadn't seen any hard numbers breaking down the actual deal on a fairly granular basis. So I created this account a week ago to start asking for the information I was looking. Then I figured I might as well just do the research on my own.
So, now that my account has been aged for a week, I can share the results in a diary. I'm actually kind of hoping this is a repeat, since it seems like the granular numbers should have been covered a while back... but despite looking at the front page and rec list multiple times per day, I never saw that.
First, in case you're wondering what CED rates are, that's my acronym for capital gains/estate/dividend taxes.
Second, I know part of the angst over the deal not making a $250K cutoff for the return to Clinton rates is that Obama had campaigned on raising taxes on those making above above $250K. The under-reported thing is that technically, the deal did (very slightly) make 2013 rates higher than 2012 rates for those making above $250K by phasing out exemptions and deductions. Specifically, as per McJoan's diary: (I assume Joan McCarter is the former McJoan... I've been lurking for quite a while, but apparently missed the announcement that most FPers would use real names.)
Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000.
I don't want to get into the details of whether the PEP and Pease technically meet the campaign language on $250K or not... I just wanted to note that I understand the angst, but really think the CED stuff is worse, and deserves far more attention than I've been seeing in comments and diaries. Especially since, as it's been noted elsewhere, $250K in the beginning of the Clinton era is $400K today: http://data.bls.gov/...
There's more detail below the arcane kosymbol, but here are a couple spoilers:
- The AMT-fix cost is huge. Seriously, it dominates everything.
- Read the title again, now that you know what CED rates are. And note that when I say "worse" I mean the CED tax cuts in the deal were about 600% bigger than the marginal income tax cuts in the deal that progressives seem to be objecting to the most -- the stuff in between $250K to $450K.
- I was surprised to see that the stuff I had classified as "good" actually costs slightly more than the stuff I had classified as "bad" over the 10-year projection period. (There's also a category of things I consider basically neutral. This "neutral" category dwarfs everything since that's where I put the AMT fix.)
- However, I'm not entirely sure what portion of the good stuff should represents a negotiating win for progressive purposes. Plus some of the good stuff has a sunset provision, while none of the bad stuff does. So, after looking at the numbers, I think this sunset asymmetry is my biggest complaint about the deal, inasmuch as there are some really unfortunate ramifications of the asymmetry.
EDIT: There's been some confusion about the diary expressed in the comments below. I think maybe what I said down there might help clear up any confusion. But if more things are unclear, please let me know and I'll see if I can clarify. Here's the hopefully-helpful meat of my comment, with a little extra content:
As of the new year, there was a very brief moment when the Bush tax cuts had expired but no new law had been passed. In that moment, there was a large amount of new revenue from CED stuff on the books as compared to the tax laws in 2012. Then, in the deal, the Democrats chose to give up $660 billion of that new revenue in exchange for passing the deal. Meanwhile, the cost of extending the Bush tax cuts all the way up to an AGI of $400/$450K instead of $250K was around $100 billion or less. So we lost more than 600% revenue in CED stuff as opposed to marginal income tax rate stuff to get the deal done.
Every deal has its cost, of course, but I wanted to see what we actually got out of the deal in real dollar figures. And while it wasn't as bad as I initially thought, I'm still not sure it's very good.