An update on the latest offers on the table in negotiations to avert a year-end avalanche of federal tax increases and spending cuts known as the “fiscal cliff”:
House Speaker John Boehner would allow income tax rates to rise for people making more than $1 million per year and would hold rates where they are for everyone making less. The top rate on income exceeding $1 million would go from 35 percent to 39.6 percent.
President Barack Obama would freeze income tax rates for taxpayers making $400,000 or less and raise them for people making more.
The two sides are moving closer together. Previously, the Republican House leader opposed allowing any tax rates to go up; Obama wanted higher taxes for individual income above $200,000, or $250,000 for couples.
Obama has dropped his proposal to extend a temporary cut in Social Security payroll taxes paid by 163 million workers. Republicans want that tax to go back up.
Raising the payroll tax by 2 percentage points to its old level would cost a worker making $50,000 a year another $1,000 — or a little more than $19 per week — during 2013.
Obama is offering to reduce cost-of-living increases for Social Security recipients. Republicans have been seeking this as a key to long-term deficit reduction. But many congressional Democrats oppose it.
Government pensions and veterans’ benefits would also get smaller cost-of-living increases.
In addition, taxpayers, especially low- and middle-income families, would pay more because of changes in the way that tax brackets are adjusted for inflation.
Obama continues to reject Republicans’ plan to raise the eligibility age for Medicare from 65 to 67. Boehner now says raising the eligibility age is not essential to a deal.
Obama wants to limit cuts in Medicare and other health care programs to about $400 billion over 10 years; Republicans want to overhaul Medicare to save even more money.
Obama wants a deal that would raise the amount the government is allowed to borrow to cover the next two years, to avoid another debt showdown with Congress until after the 2014 midterm elections.
Previously, Obama had demanded permanent authority to increase the debt ceiling without congressional approval. Republicans want Congress to be part of the decision-making process so they can demand budget-cutting in exchange for additional borrowing.
Obama and Boehner both propose raising taxes on dividends and capital gains from 15 percent to 20 percent.
Both sides would reduce the number of deductions and exemptions that wealthy taxpayers can claim.
Obama would also let estate taxes revert to a 45 percent rate, after the first $3.5 million of an estate is exempted. Boehner backs a plan for a 35 percent rate and $5 million exemption.
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