Wednesday, November 07, 2012

Boehner on the possible terms for a fiscal cliff deal

In his post-election press conference today, Speaker Boehner seemingly drew a line in the sand that actually may not be much of a line, and indeed this might be deliberate.  He said he would support new revenues in exchange for spending and entitlements cuts, but not higher tax rates on top earners.

The potentially interesting thing about this is that there are tax rate hikes that don't quite expressly look like tax rate hikes.  Consider "PEP and "Pease" under current law - the phaseout of personal exemptions and itemized deductions that are actually best thought of as temporary higher rates for upper income individuals that at some point expire.  So the actual effective marginal rate temporarily exceeds the statutory marginal rate, but then the two come back together once the phase-out is done.

PEP and Pease have currently been repealed for the years 2010-2012, but are scheduled to come back next year.  But Boehner would surely have to give up more than just accepting PEP and Pease in order to make a larger deal - assuming (as remains unclear) that he and his caucus have any actual interest in doing so.

Most tax policy types don't like the PEP-Pease approach for its lack of transparency.  But one who was willing to accept higher marginal rates so long as they were called something else might regard this as a good thing.

Plus, insofar as any new PEP or Pease-style marginal rate increases do indeed expire at some point, the people at the very top of the income distribution (the Sheldon Adelmans of the world), whom I would assume are dearest of all to Boehner's and his allies' hearts, would get the benefit of having their effective marginal rates revert at some point back to 35%.  So the not-quite-as-rich would be hit, in a comparative (though not an overall dollars) sense harder than the extremely rich.  There are also, by the way, economic efficiency arguments for having the rate decline at the top, which I suppose could be phrased in terms of "job creators.".

Anyway, there is potentially interesting movement here, though I doubt that it will end up amounting to anything.

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