Winners and Losers from a Fiscal-Cliff Deal

Winners and Losers from a Fiscal-Cliff Deal

January 2, 2013

National Journal - Middle and lower-income taxpayers are the main beneficiaries of the fiscal-cliff deal, but there are other winners—and losers—of the last-minute scramble to avert scheduled tax increases and spending cuts. The gridlock leading up to the deal dimmed the country’s already dim view of Congress. Lawmakers aren’t going to get the grand deficit-reduction bargain they had hoped for. And although an economic crisis may have been averted, the final deal sets the stage for another debt-ceiling showdown.

Winners:

‘Middle-Class’ Taxpayers. With the Bush tax cuts set to extend for individuals making less than $400,000, middle- and upper-middle class taxpayers can breathe a sigh of relief. The Alternative Minimum Tax will be permanently lifted to reflect inflation, sparing close to 30 million taxpayers from a tax increase. The tax relief isn’t total, however: The payroll tax cut won’t be extended for another year, meaning that working Americans will see their paychecks reduced in 2013. But it could have been worse.

President Obama and Vice President Biden. President Obama made the fiscal cliff negotiations all about taxes, repeating the call for tax increases on the rich and tax cuts for the middle class that helped him win reelection. Although the final deal is less than the president had hoped for, he gets to say he kept his campaign promise to protect middle-class Americans. He also gets to renew key tax cuts passed as part of his 2009 stimulus package and to extend unemployment insurance. Meanwhile, Vice President Joe Biden can revel in the crucial role he played in last-minute discussions with Senate Minority Leader Mitch McConnell.

Senate Minority Leader Mitch McConnell. The wily legislator who once pledged to block President Obama at every turn has proved, once again, to be a crucial deal-maker between the White House and Congress. Initially sidelined as negotiations focused on President Obama and Speaker John Boehner, McConnell stepped forward at the last minute to help craft legislation that Republicans could support.

AARP. Seniors—and the lobbyists who represent them—won’t be feeling the pain of entitlement cuts come January, despite initial insistence from Republican lawmakers that significant cuts to Medicare or Social Security be part of a fiscal cliff deal. The battle to prevent a switch to chained CPI, a metric that would reduce the growth of Social Security payments, has been won, at least for now.

Losers:

Deficit Hawks. Going over the fiscal cliff would have significantly reduced the deficit, combining cuts to domestic and military spending with tax hikes on pretty much everyone. The last-minute deal reached by Washington negotiators lifted taxes on the wealthiest Americans and didn’t do anything to cut spending.

Speaker Boehner’s Plan B. Speaker Boehner’s attempt to rally his caucus behind an alternate cliff deal, dubbed "Plan B," failed miserably: a bad sign of the Ohio Republican’s ability to put forward an alternative that his caucus could take seriously. Boehner’s plan included too many tax increases and not enough spending cuts for Republicans to stomach—and it seemed to temporarily stall negotiations.

The U.S. Treasury. The United States hit its borrowing limit on Monday, and lawmakers failed to include raising the limit as part of the cliff deal. The Treasury Department will enact what it calls “extraordinary measures” to avoid a government default, but it can only protect the nation’s credit for so long. Stay tuned in the coming months for another Washington fight over whether, and how, to raise the debt ceiling.

The 1 Percent. Wealthy Americans who make their money from investments, rather than paychecks, were losers in the fiscal-cliff deal. In addition to higher income taxes, those who make above $400,000 will now be subject to a 20 percent tax rate on their capital gains and dividends. The fiscal cliff wasn’t all bad news for the wealthy, however: They can still bequeath up to $5 million tax-free, with any additional money taxed at 40 percent. That’s greater than the current 35 percent estate tax rate, but less than the 55 percent rate on assets over $1 million that would have gone into effect without a deal.

Holiday Cheer.  From senators who had to fly back to Washington two days after Christmas to Hill staffers who canceled New Year's Eve plans in anticipation of a late night hammering out a deal, the fiscal-cliff negotiations cast a pall over the holiday season. And it wasn’t just Washington: Americans spent the holidays wringing their hands over pending tax increases.