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The Fiscal Cliff Deal – Many Changes from 2012 to 2013
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January 17, 2013
Since Election Day this past November, the talk in Washington and around the country has focused on the “Fiscal Cliff”. The Fiscal Cliff had become the popular term used to describe the deadline the U.S. government faced come January 1st2013. A deal must be reached by then to avert a broad mix of tax hikes and spending cuts, including the terms of the Budget Control Act of 2011 (BCA). The BCA was a deal struck between the House and the President to raise the debt limit, create a supercommittee to enact budgetary reforms, and if it failed to act, cuts called “sequestration” to the tune of a trillion dollars from military and Medicare would go into effect. The tax hikes and cuts included in the Fiscal Cliff are as follows:
- The end of temporary payroll tax cuts, resulting in a 2% tax increase for workers
- The end of certain tax breaks for businesses
- Shifts in the Alternative Minimum Tax (AMT)
- The end of the Bush era tax cuts in effect during 2001-2003
- The enactment of new Obamacare taxes and fees
- Sequestration cuts to over 1,000 government programs falling heavily on Medicare and the Defense Department
Following a deal brokered by Vice-President Joe Biden and Senate Minority Leader Mitch McConnell, a number of provisions in effect for 2012 will be extended while many more have been modified. In addition to the tax policy affected by the bill approved by a bipartisan majority of the House and Senate, a number of spending policies will be affected as well. CapitolWatch has broken down the key elements of this legislation and how it will affect you this year.
TAX POLICIES AFFECTED
- Marginal Tax Rates: Permanently extends 2012 tax policy up to $400,000 for singles and $450,000 for married couples.
- Capital Gains Taxes and Taxes on Dividends: Permanently extends 15 percent top capital gains and dividends rate up to $400,000 for singles, $450,000 for married couples, while enacting a 20 percent rate for both above the threshold.
- Death Tax: Permanently extends current tax policy on portability and unification with a $5 million exemption indexed for inflation and a 40 percent top rate.
- Personal Exemption Phase-out and the Deduction Cap: Permanently relief from PEP and Pease for singles making under $250,000 and married couples making $300,000.
- Alternative Minimum Tax: Permanently indexes the Alternative Minimum Tax for inflation.
- Payroll Tax Cut: Allows the temporary payroll tax cut to expire for all Americans.
SPENDING POLICIES AFFECTED
- Federal Debt Limit: No increase in the debt limit. This will have to be addressed by Congress separately as the statutory limit of $16.394 trillion has been reached.
- Sequestration Implemented from the BCA: Provides for a two month delay in its implementation.
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