The Week Ahead
Capitol Hill January 1, 2013
Happy New Year to our clients and friends. As the U.S. technically goes over the cliff, it appears the framework for a deal has been reached and is being finalized on Capitol Hill. Senator McConnell took to the floor yesterday to issue a final statement supporting tax cut extensions in return for spending cuts in the first session of the 113th Congress. The agreement which needs passage from both chambers could avert tax increases on most individuals. Tax measures must originate or be approved by the House which has not yet scheduled consideration of the Biden-McConnell agreement. While comprehensive details have yet to emerge, below is the basic framework of the Biden-McConnell agreement.
What’s in the fiscal cliff deal ?
As reported from Politico last night —
Income taxes: An increase to a 39.6 percent for individuals making more than $400,000 a year and families making more than $450,000. The previous for those earners was 35 percent.
Payroll tax: The small cut in the Social Security tax for all earners will be allowed to expire.
Alternative minimum tax: A permanent patch to keep more Americans from being subject to the increased tax level, which would have affected an estimated 30 million taxpayers next year.
Dividends and capital gains: Taxed at 20 percent for individuals making at least $400,000 and $450,000 for families.
PEP and Pease deduction caps: The Personal Exemption Phase-out (PEP) will be reinstated with a starting threshold for those making $250,000. The “Pease” deduction will be reinstated for those making $300,000 or more. Under former President George W. Bush, these deduction caps were suspended.
Estate tax: The estate tax will have a $10 million exemption with additional inheritance taxed at 40 percent.
Unemployment benefits: Additional benefits for the long-term unemployed are extended through the end of 2013. Those benefits expired on Friday.
Business tax credits: Tax credits for businesses, including Research and Experimentation Tax Credit and the Production Tax Credit, are extended through the end of 2013.
Stimulus tax credits: A five year extension of tax credits largely used by lower and middle class workers that were expanded as part of the stimulus, including the Child Tax Credit, Earned Income Tax Credit and college tuition tax credit
“Doc fix”: Stops a 27 percent reduction in payments to Medicare providers using spending cuts as offsets.
Sequester: Still undetermined. Republicans are pushing for offsetting with only cuts in spending from other agencies and Democrats would like to use some spending cuts and new tax revenue to offset.