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Molly Moorhead
By Molly Moorhead January 3, 2013

Fiscal cliff deal extends low rates, but not for everybody

Back in 2010, Congress and President Barack Obama went to the mat over the expiring Bush tax cuts, and in that round the Republicans came out ahead. Two years later, in negotiations to avoid the fiscal cliff, the outcome is something closer to a draw.

Obama campaigned on keeping rates the same for lower incomes but increasing them for the wealthy. He agreed in 2010 to an extension for all incomes and in return won another year of unemployment benefits and a one-year reduction of Social Security taxes.

The threat of the fiscal cliff -- overnight spending cuts and tax increases starting in 2013 -- forced Obama and congressional Republicans back to the negotiating table. The deal struck on Jan. 1, 2013, permanently extended the low rates for families earning less than $450,000 and individuals earning less than $400,000. For taxpayers above those income levels, their rates return to the level under President Bill Clinton -- 39.6 percent.

Obama wanted tax hikes on incomes above $250,000 and $200,000, respectively. So in the final fiscal cliff deal, he won the tax hike on the wealthy, though at a higher income threshold than he sought. Republicans won an extension of the Bush-era rates, though not on all incomes as they wanted. On balance, we rate this a Compromise.

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Robert Farley
By Robert Farley January 1, 2011

Tax compromise bill extends Bush tax cuts for two years

In December, President Barack Obama agreed to a compromise with Senate Republicans that extended the Bush tax cuts that were set to expire on Jan. 1. The compromise extended the tax cuts for two years, for everyone.

As part of the deal, which overwhelmingly passed the House and Senate, Obama agreed to continue the current tax rates for high earners: couples that make more than $250,000 and individuals who make more than $200,000. Current tax rates were also continued for people who make less than that. The tax rates, passed during President George W. Bush's administration, had an end-of-the-year expiration date and were set to go up in 2011 unless they were extended.

Obama campaigned repeatedly on letting tax rates go up for high earners, so we rated that a Promise Broken. But in giving in on that promise, he got other things in return. Obama won another year of unemployment benefits for workers who qualified; some tax cuts that were part of the 2009 economic stimulus law were continued; and he won a one-year reduction of Social Security taxes that put 2 percent of pay back into workers' paychecks.

Obama said he still opposed the tax cuts for the wealthy, even though he agreed to the extension.

"I'm as opposed to the high-end tax cuts today as I've been for years," Obama said in a press conference on Dec. 7, 2010. "In the long run, we simply can't afford them. And when they expire in two years, I will fight to end them, just as I suspect the Republican Party may fight to end the middle-class tax cuts that I've championed and that they've opposed."

This issue is far from over. While Obama vowed to try again in the future to sunset the tax cuts for the wealthy, Republicans vowed they would seek to make the tax cuts permanent.

So the fate of this promise remains unresolved. But by extending the tax cuts for two years -- avoiding the looming expiration of the tax cuts and thwarting Obama's desire to let them expire for people making over $250,000 -- Republicans have bought themselves time to try to make the tax cuts permanent. And so we move this one to In the Works.

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