The deal was primarily negotiated between Joe Biden and Mitch McConnell. Dems win key tax fights

The emerging fiscal cliff deal is enough to leave Republicans with a major New Year’s hangover.

The package being negotiated by Senate Republican Leader Mitch McConnell and Vice President Joe Biden amounts to a defeat for the GOP on multiple fronts.


(PHOTOS: 11 side effects of going over the cliff)

It not only raises tax rates, but also extends stimulus-era tax policy, prolongs emergency unemployment benefits, maintains targeted tax breaks derided by the party as corporate handouts and revives limits on deductions for the wealthy that have been dormant for almost a decade — all policies that the GOP has fought. It’s expected to raise $600 billion over 10 years.

Above all, the emerging deal would shatter 20 years of Republican orthodoxy on taxes, undercutting a core part of the party identity that had been built around giving no quarter to any tax increase — ever. An eventual vote on this tax package would mark the first time any Republicans have voted en masse on a tax increase since President George H.W. Bush famously recanted on his “read my lips” promise.

Democrats are making concessions of their own, especially on the threshold at which tax rate hikes should kick in. After a campaign that centered on raising taxes for those making more than $250,000, the deal would instead raise the bar to $400,000 for individuals and $450,000 for married couples. Democrats also failed in their bid to subject more inheritances to a steeper estate tax and increase the debt ceiling as part of a fiscal cliff package.

(Also on POLITICO: Breakthrough on fiscal cliff)

Still, conservative commentators were quick to pan the deal and urged GOP lawmakers to fight it.

“Republicans should kill the compromise plan for the fiscal cliff,” Erick Erickson wrote on his Web site Monday.

There are plenty of uncertainties remaining as the clock ticks down to Jan. 1. Lawmakers in the Senate could block a swift vote on the deal. The House could amend it or reject it in whole.

McConnell is working to avoid such a rebellion. He spoke on the Senate floor Monday afternoon and said that the deal solves the most urgent aspect of the fiscal cliff — tax policy — while leaving room to work on spending cuts.

“Let’s pass the tax relief portion now,” he said. “Let’s take what has been agreed to and get moving.”

( PHOTOS: 12 Republicans resigned to higher taxes)

In an afternoon appearance at the White House, President Barack Obama touted the deal for raising tax rates on top earners. But perhaps the most symbolic win for Democrats is the continuation of key stimulus-era tax provisions.

Not a single Republican in the House voted for the 2009 law which, among other things, expanded the child tax credit and the earned income tax credit while introducing another credit to help families send kids to college. Now, after railing against the law since its enactment, the GOP is facing the prospects of a deal that would extend these provisions for five years.

Meanwhile, a package of billions of dollars’ worth of targeted tax breaks is sure to give the GOP heartburn. House Republicans lamented the so-called extenders bill that was approved by the Senate Finance Committee in August but never offered one of their own. Now, the party is looking at a deal that largely tacks on the provisions from the Senate deal, including an extension of the research and development credit along with other breaks for energy companies.

The deal is also expected to allow companies to keep writing off half of their equipment expenses for another year.

“We worked very hard on” ensuring that extenders were included in a deal, Senate Finance Committee Chairman Max Baucus told POLITICO. “Those provisions are good policy.”

If enacted, the deal would remove a chunk of uncertainty from the tax system, which has lumbered from year to year on temporary tax policies. Beyond providing some stability for income tax rates, the estate tax would be set at a 40 percent rate on inheritances worth more than $5 million. The exemption level rises to $10 million for married couples.

Capital gains and dividends would be subject to a 20 percent rate, up from the current 15 percent levy. Those earning more than $250,000 a year will pay an additional 3.8 percent tax on their investment income once a requirement from the health care law kicks in on Jan. 1.

Still, these provisions could be upended next year. Baucus and House Ways and Means Committee Chairman Dave Camp (R-Mich.) have both said they plan to move on a comprehensive rewrite of the individual and corporate tax codes in 2013.

Though the deal includes significant concessions from Republicans, Democrats on Capitol Hill were slow to cheer. As the evening progressed, Senate Democrats had not yet huddled to discuss the proposal. And Majority Leader Harry Reid was noticeably silent on the framework for most of the day.

Divisions within the party surfaced early Monday when liberals like Rhode Island Sen. Sheldon Whitehouse raised concerns about the higher threshold for tax increases.

McConnell spent nearly an hour Monday evening briefing the Republican conference on the deal he hammered together with Biden. As the meeting broke up, Republicans were largely silent about whether they'd oppose the deal because of some of its tax elements.

Pennsylvania Sen. Pat Toomey, a former president of the anti-tax Club for Growth, would only say that he's "evaluating the whole thing."

Sen. Mike Johanns (R-Neb.) described the tone of the meeting as "very informational."

"Every senator is going to have a given view on a given topic but I think the tone was very respectful," he said.

This article first appeared on POLITICO Pro at 4:04 p.m. on December 31, 2012.

This article tagged under: Fiscal Cliff

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