The dam has finally broken on higher tax rates: House Speaker John Boehner (R-Ohio) has proposed letting the Bush tax cuts expire for income above $1 million — the first time he has agreed to let tax rates rise since the beginning of this debate. Senate Minority Leader Mitch McConnell has alternately proposed conceding on the $250,000 cutoff for individual income but maintaining the other parts of the Bush tax cuts that benefit the wealthy — the tax cuts on capital gains, dividends, and estates, as well as suspending restrictions on individual tax exemptions and deductions.
Democrats, however, say that neither proposal puts forward enough tax revenue for a deal. Boehner's $1 million threshold would raise $463 billion over 10 years, compared to about $829 billion for the $250,000 threshold that Democrats are insisting upon, according to the Joint Committee on Taxation. Obama is now asking for $1.4 trillion in tax revenue, and Boehner himself had offered $800 billion, so a millionaire's tax hike alone would be far from enough for Democrats. Boehner has promised $500 billion more through a tax code overhaul next year, but he'll need to offer more revenue upfront to satisfy the White House.
McConnell, by contrast, would give into Obama's demand on higher taxes for the top 2 percent of Americans, but also he would also try to block other tax hikes that overwhelmingly benefit the wealthiest Americans. Under the strategy, Republicans would give in on higher marginal tax rates but also attempt to block "higher rates on investment income and limits on the value of itemized deductions," my colleagues Lori Montgomery and Paul Kane explain.
The Bush tax cuts, for instance, don't just lower the marginal rates for individuals, but also lower taxes on capital gains, dividends, and estates, and repeal PEP and Pease, two policies limiting itemized deductions and personal exemptions. Republicans could give in on marginal rates for the top 2 percent but fight to keep the taxes on capital gains and dividends from rising to 15 to 20 percent for wealthy Americas; to keep the estate tax from rising from 45 to 55 percent; and to ensure that the bigger exemptions remain, as the Tax Policy Center explains.
But like Boehner's proposal, the McConnell plan would significantly reduce the amount of tax revenue: According to one top Senate Republican aide that spoke to TPM, such a compromise would only bring in about a quarter of the revenue that Obama is currently asking for — a little more than $400 billion in new taxes.
As such, neither proposal will be the endgame for taxes. But they do lay the groundwork for a way around one of the biggest impasses in the "fiscal cliff" negotiations. As my colleagues report, White House officials say that "a threshold of $375,000 or even $500,000 might be more acceptable."