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The tax deal currently being floated would also include a five-year extension of credits for college tuition, as well as a number of tax breaks for businesses. However, the tax on inherited estates worth more than $5 million would go up from 35 percent to 40 percent. Long-term unemployment benefits would also be extended for another year.
Democrats and Republicans also both seem to agree that the payroll tax holiday, which began two years ago, should be kept on the chopping block. Nearly 160 million workers currently pay 4.2 percent for the Social Security tax on the first $113,700 of their annual income, but the rate is likely to return to 6.2 percent in the New Year.
“But it’s not done,” emphasized the president in his address. Taxes are just one side of the fiscal coin. Democrats have spent the last few weeks wearing down Republicans and getting key concessions from them on revenue, and now Republicans have less than 10 hours to apply the millstone to entitlements. Democrats are keen on keeping social programs in place and have scored a few victories already.
If fair is fair, then the sequestration — fiscal austerity measures to be instituted at a number of federal agencies — could be delayed for just three months, as opposed to the two years that Democrats want them delayed. Republicans are also seeking fundamental reform of the healthcare system, which is experiencing spiraling cost problems. To sum it up: Democrats want to cut spending slowly, while Republicans think that every moment we wait makes the problem worse.
Ultimately, each side makes a good case. America’s debt is growing at an alarming rate. Perhaps overshadowed in the drama of the fiscal cliff is the debt ceiling, which the country will hit presently. Treasury Secretary Timothy Geithner will do everything in his power to prevent America from defaulting on its obligations, but at the end of the day fundamental fiscal reform will be necessary to get America’s economy and budget back on the right track. The GOP looks like it wants to slam on the breaks and line the country up as fast as possible, even if it means sacrificing some growth, or spurring another recession.
Echoing the policies of Federal Reserve Chairman Ben Bernanke, Democrats believe that we can realign the economy while keeping our foot on the gas.
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