OK

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.

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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/...

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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.

The Sources

Most of my data was taken from a Joint Committee on Taxation document that you can grab from here -- following the link automatically starts a PDF download: https://www.jct.gov/...

The CBO has a much less useful PDF here since it doesn't break down the tax stuff into categories like the JCT doc does: http://www.cbo.gov/...

There might be some bugs in the documents, so if anyone has a better rundown, please point me to it so I can update this diary. For instance, the JCT seems to be listing the tax credit numbers out a full 10 years even though I thought the deal only specified 5 years for the tax credit extensions. Also, the total costs aren't quite exactly the same in both documents, but the documents seem about right overall.

A note on accounting: I know there's some debate whether all of this should be considered tax increases or tax cuts. The JCT and CBO are using the fiscal baseline math that compares the bill to the actual conditions on January 1, so that's what I'm using here.

They give both 5-year and 10-year projections to go with the year-by-year numbers -- I'm just using 10-year projections since that's a little more standard, but anyone can go into the linked documents and look at the five-year numbers if so desired.

Additional Background

A slightly more wordy way of describing my good, bad, and neutral categories would be that the "good" stuff is stuff that I think Republicans (depressingly!) would have preferred not be in the deal, the "bad" stuff is stuff I think Democrats (hopefully!) would have preferred not be in the deal, and the "neutral" stuff is stuff that I believe both parties wanted to have in the deal.

The JCT report pegs the total cost of the deal at $3.9 trillion. Adding up all the $50+ billion items below covers $3.8 trillion of that.  So, I'm only looking at stuff that cost at least $50 billion, as anything below that is pretty much a drop in the bucket. Of course, the smaller stuff can be seen in the JCT document.

Finally, the Actual Numbers

The Good: total cost of $931 billion -- here's the breakdown, with all numbers in billions.

  • Retain 10% Bracket: $443
  • Retain Child Tax Credit: $355
  • Continuation of Additional Tax Credits Enacted In 2009: $134

The 10% bracket doesn't sunset, but could arguably be considered neutral. But given Republican rhetoric, I'm not so sure. Since this is almost half the cost of the good, one's view on if it really belongs in the good or neutral category might affect one's view on the deal.

The Child Tax Credit is apparently a full 10-year extension, so hopefully that means there's no sunset there, either. However, the $134 billion package is limited to 5 years.

What about unemployment, you might be asking? Well, for some reason, I don't see it in the JCT document, but the CBO document has it costing a mere $30 billion for the 1-year extension (below my admittedly arbitrary $50 billion threshold). So you can add that to the $931 billion to the good, or whatever number you feel is appropriate to call "good" depending on how you're treating the 10% bracket retention and tax credit 5-year vs. 10-year confusion.

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The Bad: total cost of $767 billion, with the following breakdown in billions:

  • Retain 33% Bracket and 35% Bracket for $400/$450K Joint:    $108
  • New Capital Gains Tax Rates: $59
  • New Estate Tax Rates: $369
  • New Dividend Tax Rates: $231

Which makes the total CED amount $659 billion. Which is more than 600% greater than the cost of the $250K - $400/$450K marginal rate remaining as it was in 2012, and the motivation for my title.

I can't find a source now, but taking into account the 33% bracket covers some income under $250K, I think I saw the actual cost of setting the $400/$450K cap instead of $250K was more like $80-some billion? In which case the CED rates are actually more like 800% worse...

And since we're on the $250K topic, I'll note that the PEP/Peas stuff even less of a drop in the bucket than unemployment compensation is -- "just" $11 billion over 10 years.

And a random sidenote: I wonder how much traction against the "death tax" framing we might get by calling the estate tax a "hoarder's tax" -- which seems appropriate for the times.

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The Neutral: total cost of $2.1 trillion -- so here are those numbers, in trillions this time:

  • AMT Relief: $1.816
  • Retain 25% and 28% Bracket: $0.212
  • Marriage Penalty Relief: $0.085

The way I'm thinking about the "neutral" stuff is that this is stuff that was seemed certain to happen anyway, and doesn't really reflect on the various negotiating skills on display. AMT relief gets passed every year without much fuss. The 25% and 28% brackets form much of the heart of the middle class, and no one wants to raise their income taxes, at least. I'm not quite as informed on the marriage penalty stuff, but I can't imagine either party wanting to be on record as "opposing" marriage.

As I'm typing this up, I notice there's no line item in the JCT report for the 15% bracket, a bracket which I'd guess I'd consider neutral as well. Did the 15% bracket just never change with the Bush tax cuts? I guess I shouldn't be surprised if 12 years ago they somehow decided the 15-percenters didn't need a cut beyond the cut in the 10% bracket.

And if you're curious, if I'm reading the CBO report right, the 10-year cost of the "doc fix" (which I'd also consider neutral since it gets passed every year without much fuss) is around $25 billion.

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I know that even with having all the numbers, there's not going to be agreement on how well the deal was negotiated. If the child tax credit is "permanent" and the 10% bracket retention was actually a negotiating win for the Democrats, that's almost an exactly 50:50 split of good and bad permanent costs, which doesn't seem terrible. But if the child tax credit sunsets, and/or the 10% bracket retention was something that Republicans could have been shamed into accepting regardless, the deal starts to look worse.

I could go on and talk more about the fact that anyone getting significant taxed significantly in the CED department is/was/is almost certainly ultra-rich. And that if dividend and cap gains were going to be what they were made to be in the this deal, it sure would have been nice to have an estate tax as the ultimate backstop on that resulting extra wealth. Like maybe the the much higher rate/lower limit tax the estate tax technically was briefly on the first of the year. Or that just not addressing the estate tax at all in this deal would have been probably been a stimulative tax increase, since it would have theoretically gotten people spending now rather than later/never. Nope, I won't go into all that -- I'll leave this diary mostly to the numbers.

EDIT: I see this was republished by the Community Spotlight. Thanks, Rescue Rangers!

Originally posted to asdfwasnotavailable on Wed Jan 09, 2013 at 12:48 AM PST.

Also republished by Community Spotlight.

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