Unless Congress acts, the country faces a one-two dose of automatic tax increases and spending cuts, affecting nearly every taxpayer and many government programs. The tax increases would come as all of the Bush-era tax cuts expire at 12:01 am Tuesday. The across-the-board spending cuts kick in days later, part of a package that Congress enacted thinking — falsely — that it would force members to enact more carefully designed cuts.
Democrats proposed extending only those Bush-era tax cuts on individual income below $200,000 and family income below $250,000, raising taxes on income above that. Republicans had been pushing to extend all of the tax cuts.
But late yesterday afternoon, Republicans offered to sign off on raising taxes on individuals earning more than $450,000, while Democrats countered with $360,000, several senators said.
Other issues being considered as part of a possible package included extending unemployment benefits for 2 million Americans, preventing about 30 million Americans from having to pay the alternative minimum tax, keeping Medicare payments to doctors at the current rate and extending tax breaks offered to companies and individuals, according to a congressional aide familiar with the talks but not authorized to speak publicly.
The two sides also continued to debate the estate tax. Democrats want to raise the tax from 35 percent to 45 percent and apply it to estates above $3.5 million, rather than the current $5.2 million. Republicans want current rates to prevail.
The overall package being discussed would not stop $109 billion in federal government spending cuts set to start after Jan. 1, or extend a 2 percentage point cut in the payroll tax, set to expire with the Bush tax cuts. It also would not increase the government’s debt limit.