The last-minute deal New Year's Day settling part of the "fiscal cliff" mess brings a greater level of fairness into who bears the federal tax burden in the U.S. It also re-establishes the principle that all deficit reduction cannot be done by cutting budgets while never, ever increasing revenue through higher taxes.
The deal will increase the income tax rate from 35 percent to 39.6 percent on income above $400,000 for individuals and $450,000 for married couples. While this cut-off is significantly above the $250,000 level for the top bracket that President Obama campaigned for re-election on, it still is a great improvement to return the top rate starting at this higher level to what it was during the Clinton administration, a time of vigorous national prosperity.
As the Associated Press has reported, "investment taxes would increase for people who fall in the new top tax bracket." High-income families will also pay higher taxes this year as part of Obama's 2010 health care reform law. As part of that law, which was not part of this deal, a new 3.8 percent tax is being imposed on investment income for individuals making more than $200,000 a year and couples making more than $250,000.
The tax package approved on Tuesday will protect 99 percent of Americans from an income tax increase. However, the expiration of the Social Security payroll tax break of the last two years will increase the percentage all earners pay from 4.2 to 6.2 percent.
We are glad that the agreement extends unemployment insurance for another year, which both keeps the long-term unemployed from destitution and helps stimulate the economy, as recipients overwhelmingly need to spend all of it quickly for necessary goods and services.
Still this is only a partial deal, which kicks several of the most difficult issues a couple of months down the road, including severe automatic budget cuts the GOP forced into law by blackmailing the country over the debt ceiling in 2011. The debt ceiling also is set to come up again in a couple of months. President Obama has said he will not allow tea party Republicans to get away with blackmail this time. We hope he means it.
While we agree that deficit and debt reduction are good for the long-term financial health of the country, we still wonder at the party that never discussed debt or deficits when President George W. Bush ballooned them by starting two wars and instituting an expensive prescription drug plan all while cutting taxes.
It's telling that tea party Republicans in the House of Representatives did not finally relent on their obstructionist course on Tuesday night until it became obvious that they would be rightly blamed for the nation flying completely off the so-called "fiscal cliff" if they rejected the compromise plan that sailed through the Senate with bipartisan support.
It's unfortunate that the extremists in his own party again prevented House Speaker John Boehner from reaching some type of balanced "grand bargain" with President Obama, one forever taking the debt ceiling off the table as political weapon while judiciously cutting spending and raising revenue in a way that would not jeopardize our fragile recovery.