With Obama leaving his Hawaii vacation for Washington Wednesday evening and lawmakers returning Thursday, the main dividing line between Republicans and Democrats has come down to whether tax rates should increase for top earners at the end of the year, when the Bush-era tax cuts are set to expire. While Republicans want to extend all the cuts, Democrats are pushing to maintain lower rates on household income below $250,000. Those lower rates significantly reduce the taxes of nearly all American households that earn less than $250,000 — and many who earn more, even if tax rates are allowed to increase on income above that figure.
While it is increasingly unlikely that the two parties will reach an agreement to avoid the fiscal cliff before Jan. 1, it is all but certain that their ultimate deal, whenever it comes, will make permanent the lower rates for most Americans.
R. Glenn Hubbard, dean of the Columbia Business School and an architect of the Bush tax cuts, said it is “deeply ironic” for Democrats to favor extending most of them, given what he called their “visceral” opposition a decade ago. Keeping the lower rates even for income under $250,000 “would enshrine the vast bulk of the Bush tax cuts,” he said.