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Late on New Year's Day, Speaker of the House John Boehner, R-Ohio, left, and House Ways and Means Committee Chairman Dave Camp, R-Mich., confer as they leave a closed-door meeting of House Republicans to consider the " fiscal cliff" bill passed by the Senate Monday night.

J. Scott Applewhite, Associated Press

Republicans divided over cost of agreement

  • Article by: JONATHAN WEISMAN
  • New York Times
  • January 1, 2013 - 10:49 PM

 

WASHINGTON - Just a few years ago, the tax deal pushed through would have been a Republican fiscal fantasy, a bill that locks in virtually all of the Bush-era tax cuts, exempts almost all estates from taxation, and enshrines the former president's credo that dividends and capital gains should be taxed gently.

But times have changed, and House Republican leaders had to struggle to quell a revolt among Republicans who threatened to blow up a hard-fought compromise that they could have easily framed as a victory. Instead, they were in danger of putting themselves in position to be blamed if the nation's economy goes into a tailspin under the weight of automatic tax increases and spending cuts.

The revolt surprised even many Senate Republicans, who just hours before voted overwhelmingly for a deal hashed out in large measure by their leader, Mitch McConnell of Kentucky. The bill passed 89-8, with only five of the Senate's 47 Republicans voting no.

But House Republicans have again proved themselves to be a new breed, less enamored of tax cuts per se than they are driven to shrink the government through steep spending cuts. Protecting nearly 99 percent of the nation's households from an income tax increase was not enough if taxes rose on some and government spending was untouched.

By all accounts, the deal negotiated by McConnell and Vice President Joe Biden is one of the most sweeping fiscal policy changes in a decade, a measure that would bring a certainty to the tax code long demanded by the financial community.

The bill's heft was confirmed by the nonpartisan Congressional Budget Office (CBO), which said the mix of income and business tax cut extensions; new capital gains, dividend and estate tax rates; and unemployment compensation would add an estimated $4 trillion to the federal deficit compared with where the government would be if Congress did nothing to halt automatic tax increases and spending cuts that were triggered at the start of the year.

The independent Committee for a Responsible Federal Budget said that measured against extending all current policies, the deal would cut the deficit by $650 billion over 10 years. It said the biggest cost, a patch to the alternative minimum tax, should not be considered a cost at all because Congress has adjusted it each year anyway.

The bill would do much more than head off the automatic tax increases and spending cuts. It would fix in place a tax code that for more than a decade has caused struggles over temporary solutions. The bill would finally make permanent five of the six income tax rates created in 2001 by the first Bush tax cut. It would codify Bush's push, in 2003, to make tax rates on dividends and capital gains equal so that one form of investment income is not favored over the other.

But it would let lapse a 2-percentage-point cut in the payroll tax, one of the recent tax policy changes most squarely aimed at the working class, meaning take-home pay may be less even if higher income taxes are headed off.

The 10-year price includes $762 billion to lock in the Bush tax rates of 10 percent, 25 percent, 28 percent and 33 percent, along with some of the Bush-era 35 percent bracket; $354 billion to continue Bush's expanded child credit; and $339 billion to secure Bush's 15 percent capital gains and dividend rates for families earning less than $450,000. The alternative minimum tax fix would cost the Treasury $1.8 trillion, said the Joint Committee on Taxation.

Democrats say they had little choice but to extend most of the tax cuts or watch the economy sink back into recession.

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