Congress passed Tuesday the much-anticipated fiscal cliff deal, with a reluctant House approving 257-167. On Wednesday, President Obama is set to sign it into law. Despite the deal not doing much to effect the deficit, there’s been a lot of fiscal finangling, and not all of the measures being introduced have been adequately explained. Get the full primer here, with all major provisions of the bill accounted for:
- The Bush tax cuts for individuals making over $400,000 and families making more than $450,000 are over, with the top marginal rates for earners in those categories returning to 39.6% on all income.
- Earners in that category will see a tax increase of 15% to 20% of their income from capital gains and dividends.
- The other Bush tax cuts have been made permanent for those in a lower tax bracket.
- The alternative minimum tax (AMT) has been permanently patched to auto-index for inflation, allowing that process to continue without partisan bickering.
- The estate tax will be set at 40% with an exemption value of $5 million as a concession to the GOP and some Midwestern Democrats (Paul Krugman notes that “some heartland Dems Senators are extremely solicitous of the handful of super-wealthy families in their states.”)
- 2009 expansion of tax breaks for low-income earners: the Earned Income Tax Credit (for families with qualifying children or those in the 25-65 age group), Child Tax Credit, and American Opportunity Tax Credit (tuition assistance up to $2,500) have all been extended for two years.
- The PEP (Personal Exemption Phase-Out) and itemized deduction limitation will be re-imposed at $250,000 for individuals and $300,000 for families. This reduces the effective number of personal exemption deductions high earners can claim on their tax forms, and would generate roughly $12 billion a year without raising marginal tax rates.
- A package of emergency business tax breaks funding a huge variety of businesses has been extended.
- Medicare payment cuts to doctors have been delayed by a year.
- Emergency federal unemployment benefits have been extended by another year, "benefiting those unemployed for longer than 26 weeks.” That provision costs $30 billion with no payment mechanism outlined in the agreement.
- Another payroll tax cut extension was pulled off the table, meaning a 2% increase in taxes for most Americans. The cuts were intended to expire this year.
- Finally, some reason for rejoicing: according to Sen. Claire McCaskill (D-Mo.), the deal re-imposes a pay freeze on Congress. No raises for people who could barely pull this off.
Not addressed? The debt ceiling, which imposes an artificial limit on the amount of debt the federal government is able to accrue. Treasury Secretary Timothy Geithner can continue funding federal funding for about two months until Congress needs to reconsider raising the limit. While President Obama has he is unwilling to negotiate over that issue, Republicans are.
With the GOP demanding massive cuts in entitlement spending and other federal discretionary spending and no clear mechanism left to raise money via revenue, expect major partisan battles to continue through at least February.