According to congressional aides, a compromise bill would raise taxes on high-income households, but not by as much as Democrats have wanted. It also would likely continue federal benefits to the long-term unemployed and prevent a reduction in payments to doctors who treat Medicare patients. But it probably would not avert deep automatic cuts to military and nondefense discretionary programs, known as the sequester, or raise the federal debt ceiling. With spending unresolved and the government due to exceed its borrowing authority in the coming week, it’s certain the debate over government spending will consume the first few weeks or months of the next Congress.
If those steps are not taken, and with the government due to exceed its borrowing authority soon, the debate over government expenditures will almost certainly consume the first few weeks or months of the next Congress.
Still unknown is exactly which households would see a tax increase under a Senate agreement. After insisting that rates go up on income above $200,000 for individuals and $250,000 for couples, Democratic leaders have quietly signaled they could push that threshold to $400,000. Although that small change represents a breakthrough for the negotiations, it is unclear if it is enough of a concession to win over significant numbers of Republicans, especially House conservatives.
Also up in the air is the taxation of inherited estates, with liberals pushing for the higher level of tax that was in place a few years ago and Republicans demanding continuation of current policy.
The estate tax has emerged as a major stumbling block, sources familiar with the talks said Saturday evening. According to one person briefed on the negotiations, Reid has given Republicans a choice of lifting the income threshold above which there will be a tax increase from $250,000 to $400,000 or maintaining current estate tax provisions, which include a 35 percent tax rate and a $5.1 million exemption.
Republicans want both the higher income threshold and the lower estate tax. In addition, they want to trim a package of targeted, temporary tax breaks known as extenders and are taking particular aim at a collection of 2009 stimulus tax breaks.
Meantime, an aide to Speaker John A. Boehner, R-Ohio, confirmed he is opposed to including any delay of the sequester unless the automatic spending cuts are matched by other spending reductions.
Absent congressional action, a broad range of tax cuts enacted over the past decade will lapse at the end of the year, including reduced tax rates on ordinary income, capital gains and dividends and a 2-percentage-point drop in the Social Security payroll tax. According to the Tax Policy Center, the expiration of all tax cuts would cause federal tax collections to grow by $500 billion, or more than 20 percent, next year, with nearly 90 percent of all households facing an average increase of $3,500.
On a damp holiday weekend, Senate leadership staffers were shuttling papers between the offices of McConnell and Majority Leader Harry Reid of Nevada. Boehner made a brief visit to his office in the morning, and McConnell arrived in the building soon after Boehner left.