POLITICS
11/30/2012 05:01 pm ET Updated Nov 30, 2012

Fiscal Cliff Primer: Should Everyone Freak Out About Obama's Opening Bid?

No. But there are several interesting elements, particularly among the combined $1.6 trillion in new tax revenue.

Obama has spent most of the past month insisting that the Bush-era tax rates for households making over $250,000 will expire at year-end, but he has not been as forthcoming about the fate of other major tax perks that benefit the wealthy. His opening gambit for the talks would raise additional money by increasing the estate tax, curbing some abuses associated with offshore tax havens, ending oil subsidies, closing the carried interest loophole, and raising the capital gains tax rate from 15 percent to 20 percent.

At less than half the current 35 percent rate that the wealthiest Americans pay on ordinary income, the 15 percent capital gains tax rate is one of the most generous provisions for the rich in the tax code. Over the past 20 years, 50 percent of all capital gains have flowed to the richest 0.1 percent of taxpayers, according to The Washington Post.

And the carried interest loophole currently allows hedge fund managers and private equity magnates to be taxed at the capital gains rate for services that many believe should be taxed at the 35 percent rate for ordinary income. The loophole was a dominant driver of the low tax rates enjoyed by GOP presidential candidate Mitt Romney.

Republicans have generally supported all of these tax policies in the past, but Obama also caps the total amount of deductions that the wealthy can list on their tax returns, an idea he has already advanced in his latest budget proposal and one favored by several Republicans -- from Romney to Sen. Bob Corker (R-Tenn.).

The $400 billion in unspecified cuts to Medicare will likely make progressives nervous, but there are ways to make the system more efficient other than simply by cutting benefits, although Obama did not rule out that option in his opening bid.

For more details, watch the video above.

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