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Beware: 'Fiscal cliff' ahead

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    Little progress in talks as deadline fast approaches

  • Duration 6:30
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Welcome to The Journal Editorial Report I'm -- if you go little progress this week and efforts to avoid January looming tax hikes and across the board spending cuts commonly known as the fiscal cliff.

Despite a phone call between President Obama and house speaker John Boehner Wednesday night.

The two sides appear to be no closer to a compromise but -- Republicans working behind the scenes on a -- me.

Joining the panel this week Wall Street Journal columnist and deputy editor Dan and anger assistant editorial page editor.

James Freeman and Washington columnist Kim -- so.

-- my you've been working the phones this week is the talks is dead in the water is people say or is there something here that's really going on between speaker Boehner and the president.

No I think that they are nowhere and a and that's because the president is refusing to budge at all on the top tax rates in fact they.

Hard into their language this week saying oh absolutely we will go off the cliff if the Republicans don't.

A -- to that demand Ahmanson's Republicans have -- a bright line around that we are still at a standstill.

All right but Kim why is the president so insistence.

On and increasing tax rate has Boehner has already put on the table -- comparable amount of money.

To be gained firm putting a cap on deductions about 800 billion over ten years why so insistent on race.

What -- Paul there are two reasons the first one is ideological -- his partisans his liberal base.

Believe that this is somehow a symbol of -- the tax fight.

That you can only do that by raising rates on on the on the wealthy in the country and so they are insisted on that.

The other thing that the president is interested in is is he wants a double deal here he wants -- -- raise tax rates.

And also taken the deductions of the closing of tax deductions that the Republicans have offered so he is trying to upped the ante.

-- -- OK so he's raised the ante again not just from 800 billion to one point six trillion over ten years so he gets 800 only -- 800 billion even on the best scoring from the raising the rates he wants to raise.

So he's got to get the rest from deduction but that's a huge revenue yet.

Well of course that's a huge revenue -- but that's what the president wants and I think what he really wants is to.

Enact these tax rate increases and make them permanent.

I mean there is a kind of conventional wisdom that will do these things and then sometime next year -- even the president says will do a more extensive tax reform.

That's not going to happen this is Barack Obama's tax reform is going to work raise these rates.

Raise the rates on capital gains and dividends possibly even the estate tax.

And the deductions and exemptions.

And he'll be done what tax reform tax reform is very hard to do and I think his goal is to make this set of tax changes.

Permanent I think he wants one thing else one other thing two games and that is.

He wants Republican fingerprints that is votes in favor of raising rates because he knows that if they do does -- that happens.

He divides the Republican Party any offer some protection.

For Democrats for raising taxes in the next congressional auction.

Absolutely you're breaking the Republican Party you -- would be a benefit to this plan also -- I don't think Barack Obama minds of the tax rates go up on.

Middle income people as well but he's promised so insists he is that he does in here saying -- -- -- I privately -- the ultimate win is to have that.

All that new revenue for the government and be able to blame on Republicans so.

So I don't hold it wait a minute are you saying that if we do go over the cliff nothing happens in December.

Come January the president will turn around and not insist on the middle class portion of these tax I think he would be happy if if there was no deal and the -- -- taxes went up and he was allowed to say you know look Republicans wouldn't wouldn't come along on this -- way to win a -- -- Twenty million people will be hit by -- -- more people would be hit by the Alternative Minimum Tax for example.

If nothing happens.

That's that's that.

And you know where those taxpayers are James I hate to tell you this there in your state university -- in Connecticut and new York and there and California and Illinois.

A lot of places where Democrats govern because their big day.

If they have the most deductions that the federal apple well and as -- Explain many times the the amount of money he can get for its tax rates for -- and if he got -- -- tax it it does nothing.

To solve the the deficit problem so he was eventually.

Taxes are gonna have to at the middle class.

Number wasted that one is a -- tax a carbon tax on energy.

Another way is just raising income rates on everyone and if he can blame that Republicans of this and this might be the the way to get -- -- I.

I'm gonna have to disagree on the politics of what James says -- I think the president can't let that Alternative Minimum Tax hit because of pressure on from his own party in from senators up for reelection and 2014 -- -- Democrats would be enormous.

Yeah I kind of agree James I think that would be an Achilles heel for the Democrats that's the one place -- a third rail as we say they don't wanna go.

I agree with you Paul that the game here is to hang this on the Republicans.

And then pitched that forward I have said this before to those mid term elections they want to bring the Republicans down in the house and I think that's the strategy behind what's going on the idea that you're going to do all these tax changes in two weeks before the end of the year.

Tax policy has never been written that way.

Kim to the Republicans have more leverage here than they think because of the alternative minimum tax and some of these other issues.

Right now the president has remained -- firm I think that the leverage that Republicans have.

Is not allowing him to drag them and look that the general view out there among Republicans right now is it tax policy is going to go up either way tax rates are gonna go up either because we go over the clip from because the president.

Pulls them along into a panic the last minute deal in the best thing to do as you were just saying is to try to minimize their political responsibility.

For this.

And maybe for instance just come up with a plan B that says the president you want your top two tax rates extended.

Here here's a bill extending at everything else for the lower class the top two tax rates go up right but you're getting nothing else -- us.

And you on the consequences to the economy and everything that's.

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