The ‘Fiscal Cliff’ Crisis: Democratic Versus Republican Proposals


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Democratic Plan to Avoid the ‘Fiscal Cliff’

Always with a fixed smile on her face, House minority leader Nancy Pelosi is anything but pleased with the ‘fiscal cliff’ negotiations so far. Image by anonymous 

President Obama campaigned tirelessly on a what he called a “balanced approach” to deficit reduction with one consistent precept that has prompted political civil war amongst the Republicans: allowing the Bush tax cuts to expire only on families making in excess of $250,000.

The remaining 98% of Americans would see them permanently extended. Polls have consistently shown broad public support for tax increases on the top 2% of income brackets, with  a CBS News/New York Times poll not only showing Democrats and Independents backing the idea, but a majority of Republicans favoring the proposal as well.

Obama made three proposals during the negotiations with House Speaker John Boehner. The third proposal featured $1.2 trillion in new revenues, along with $1.2 trillion in spending cuts. First, the revenues:

  • Increasing taxes to families making over $400,000
  • Limiting the tax benefit of itemized deductions to 28%
  • Resetting estate taxes to 45% (2009 level)
  • Elimination of the 2010 2% payroll tax cut


The $1.2 trillion in spending cuts would come from the following areas:

  • $100 billion in defense cuts
  • $290 billion in interest savings
  • $130 billion in Social Security, by utilizing chained CPI for cost of living increases
  • $400 billion in health care savings
  • Various other spending reductions

The Democratic offer also included $50 billion in new stimulus spending, an extension of unemployment benefits and a two-year increase in the debt ceiling.

Republican Proposal to Avoid the ‘Fiscal Cliff’

As stated earlier, there are some in Congress — not just within the Republican party — who believe it is in the country’s best interest to go over the cliff. Most Republicans, however, remain in general solidarity that taxes should not be raised as part of the solution. Having said that, cracks began to develop in recent weeks within the party. Representative Eric Cantor of Virginia explained, “A lot has been said about this (taxpayer protection) pledge and I will tell you when I go to the constituents that re-elected me, it is not about that pledge, it really is about trying to solve problems.” Several other prominent Republicans have made comments about breaking the pledge, including Representative Peter King of New York and Senator Lindsay Graham of South Carolina.

Sensing blood in the water, Boehner’s latest offer was for a package totaling $2 trillion, split evenly between new revenues and spending cuts. Revenue increases were to be derived as follows:

  • An increase in the marginal tax rate from 35% to 39.6% for households making in excess of $1 million
  • Closing certain tax loopholes and limiting itemized deductions

Republican spending cuts were never fully disclosed publicly, but tallied up to $1 trillion over a ten-year period and focused primarily on entitlement savings, such as raising the Medicare eligibility age to 67, and utilizing chained CPI. It should be noted that Republicans did not agree that all the Democratic spending cuts were tangible, and as such claimed they only added up to $930 billion.

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