Here is the link to the legislative text of the deal (thank you, Elizabeth Lower-Basch): http://www.scribd.com/doc/118551686/Mat-12564
- UI extended for one year
- income tax rates go up on income starting at $400,000 for individuals, $450,000 for joint filers
- limits on personal exemptions in existence in Clinton years restored starting at $250k; limits on itemized deductions restored starting at
- Estate tax rate goes up from current 35% to 40%, but level below which estates are exempt stays the same ($10m for couples; $5m for
individuals) now but is INDEXED FOR INFLATION! so expected to rise to $15m for couples in 2020.
- Capital gains and dividends taxes rise from 15% to 20%.
- Refundable credits (Child Tax Credit, EITC, American Oppty Tax Credit) extended for 5 years; all other Bush income tax cuts made permanent).
- Tax cut "extenders" extended for one year (usual list: Research and Development, non-refundable education credit, many business credits, low-income housing construction credit...)
- Permanent fix for AMT (Alternate Minimum Tax).
- Sequester cuts postponed until March; cost of delay paid for with $12b from revenue gained from voluntary transfer of traditional IRA's to Roth
IRA's and $12b from unspecified cuts, half from Pentagon and half from domestic discretionary.
- Medicare "doc fix" (SGR) for a year.
- Makes permanent the provision disregarding tax refunds from means-tested benefit programs (not counted as income, and disregarded as resources for 12 months)
- Tax extenders includes both the above the line tuition deduction (sec 207) and the WOTC (sec 309), both retroactive to cover 2012 as well as 2013.
- Extends transitional medical assistance (TMA) through 2013. (sec 622)
- Extends Express Lane Eligibility for Medicaid and CHIP -- I think through 2014, but would need to check the underlying law (sec 623)
- Extends Farm Bill through September -- no SNAP cuts. E&T is funded at $79 million, as it has been the past few years. (Title 7)
January 1, 2013, 12:17 a.m. ET
Details of Tax Law Changes Spelled Out
Wall St. Journal
By LAURA SAUNDERS
The tax changes included in the bill hashed out between the White House and congressional Republicans Monday includes the first increases in top income-tax rates in nearly two decades. They also set new thresholds for determining who is "rich," while leaving most people's tax rates unchanged.
"It appears nearly 99% of the population would see little or no change in their income taxes for 2013," said Roberton Williams, an economist at the Tax Policy Center in Washington.
It is unclear how large tax increases will be for the 1%, he said, as important details have yet to be released. And the measure hashed out by Senate Minority Leader Mitch McConnell (R., Ky.) and Vice President Joseph Biden still must be approved in both the Senate and the House, where passage can't be assured.
- Summary of the Bill's Tax Provisions
- Budget Compromise Moves to House
- Deal's Likely Impact: More Slow Growth
- Deal Leaves Lawmakers With More to Do
- CEOs' Deficit Push Falters in Political Echo Chamber
- Capital Journal: Why Reaching Deals Is Hard
- Live: Fiscal Cliff Stream
For millions of wage earners, the most immediate effect would be the lapse of a two-percentage-point payroll-tax cut that was part of a deal President Barack Obama struck with Republicans late in 2010. It lowered to 4.2% from 6.2% the employee portion of the Social Security tax, allowing workers to keep more take-home pay.
For an individual earning the maximum 2013 cap of $113,700 or more, the increase would be nearly $200 per month. Overall, the expiration of this stimulus would cost working Americans $125 billion a year, according to J.P. Morgan Chase JPM +1.69% .
Beyond that, it will take up to four weeks after a bill is passed for many workers to know exactly what their 2013 take-home pay will be, according to Michael O'Toole, an official of the American Payroll Association, a group of 21,000 payroll managers.
Just before midnight, the Internal Revenue Service issued new withholding tables for 2013 reflecting the expiration of the 2001-3 tax cuts and the two-percentage point Social Security tax cut. But the IRS noted that the tables might change given pending legislation.
The 2013 tax-filing season also is likely to be disrupted by Washington's wrangling on deadline. In November, acting Internal Revenue Service Commissioner Steve Miller warned that the filing season would be delayed by several weeks. Normally the season opens in mid-January, but this year it may be delayed till mid-February or later.
As a result, many filers won't be able to receive tax refunds as early as they normally do. "Congress's delays have pushed back the repayment of interest-free loans to the government for millions of taxpayers," said Lawrence Gibbs, a former IRS Commissioner now with the Miller & Chevalier law firm in Washington. The average refund is approaching $3,000, according to IRS data.
Restoration of the 2% Social Security Payroll Tax Affects the Rich Less than the Rest of Us
The deal reached between Vice President Joe Biden and Senator Mitch McConnell, which was approved by the Senate on the last day of the year, will include the expiration of the 2% payroll tax holiday and an increase from 35% to 39.6% for individual income over $400,000. But regular Americans will face higher tax increases than much/most of the top 2%. That's due to the failure to replace the payroll tax holiday with something like Make Work Pay. See the chart below, based on individual incomes in 2013.
Restoration of the 2% payroll tax that funds Social Security benefits only applies to incomes up to $113,700. Not payroll taxes are paid on incomes in excess of that. That means that the majority of Americans who don't earn anything even close to that upper limit will pay the full 2% while those who earn much more will pay a declining percentage of their incomes in payroll taxes. The higher the income, the smaller percentage is paid in payroll taxes.
Monday, December 31, 2012
New Year means tax increases to pay for health care law
The president won re-election promising to raise taxes on those earning more than $250,000. Now he's already capitulating
guardian.co.uk, Tuesday 1 January 2013 14.01 EST
There are three points that people should recognize about the fiscal cliff deal that appears to have been agreed by President Obama and the Republicans in Congress. The first is the simple and obvious point that we have gone over the cliff. There was no deal approved by Congress and signed by President Obama before the 1 January deadline.
This is important because the budget reporting on the "fiscal cliff" repeatedly asserted that the country and the economy faced dire consequences from not having a deal reached by this deadline. They repeatedly asserted that we risked a recession, grossly misrepresenting forecasts from the Congressional Budget Office, and others predicted the consequences of leaving higher tax rates and large spending cuts in place for the whole year.
The Fiscal Cliff Deal: Who Got Thrown Off?
by Dean Baker, published in The Guardian (UK)
There are three points that people should recognize about the fiscal cliff deal that appears to have been agreed to by President Obama and the Republicans in Congress. The first is the simple and obvious point that we have gone over the cliff. There was no deal approved by Congress and signed by President Obama before the January 1 deadline.
This is important because the budget reporting on the “fiscal cliff” repeatedly asserted that the country and the economy faced dire consequences from not having a deal reached by this deadline. They repeatedly asserted that we risked a recession, grossly misrepresenting forecasts from the ongressional Budget Office and others predicted the consequences of leaving higher tax rates and large spending cuts in place for the whole year.
There was also the prediction that the financial markets would melt down if there was no deal approved by the deadline. While the markets are not yet open, they actually rallied on the last day of 2012 on the news that the outlines of a deal had been reached, even though the deadline would almost surely be missed.
In other words, the financial markets responded as many of us non-insiders predicted. As long as it was clear that a deal would be forthcoming, they didn’t give a damn about the fiscal “cliff” deadline. Chalk this one up as yet another example of the experts the people who report on the budget and the economy for the Washington Post and other major news outlets not having a clue.
The second point has to do with the substance of the deal. For those who wanted to see key programs like Social Security and Medicare protected this deal is pretty good news. The hare-brained idea of raising the age of Medicare eligibility to 67 seems to be off the table.
The plan to cut Social Security benefits by an average of 3 percent by changing the indexation formula for the cost of living adjustment is also at least temporarily off the table. The deal also continues the period of extended unemployment benefits, ensuring that 2 million unemployed workers will continue to receive checks.
On the revenue side President Obama gave in to some extent, raising the threshold for applying the Clinton era tax rates to $450,000 compared to the $250,000 level that he had touted during his campaign.
This is gift of roughly $6,000 to very rich households since it means even the richest people will have the lower tax rate applied to $200,000 of their income. Perhaps more importantly, it continues the special low tax rate for dividend income, with the richest of the rich paying a tax rate of just 20 percent on their dividend income.
The resulting loss of revenue from these concessions is roughly $200 billion over ten years or roughly 0.5 percent of projected spending during this period. By itself, this revenue loss would not be of very much consequence; what matters much more is the dynamics that this deal sets in place.
This is the third point. President Obama insisted that he was going to stick to the $250,000 cutoff requiring that the top 2 percent of households, the big winners in the economy, go back to paying the Clinton era tax rates. He backed away from this commitment even in a context where he held most of the cards. We are now entering a new round of negotiations over extending the debt ceiling where the Republicans would appear to hold many of the cards.
While the consequences may not be as dire as the pundits claim, no one could think it would be a good idea to allow the debt ceiling to be reached and force the government into default. The Republicans intend to use this threat to coerce further concessions from President Obama. President Obama insists that there will be no negotiations over the debt ceiling: no further concessions to protect the country’s financial standing. But at this point is there any reason for people to believe him?
This is a president who encouraged members of Congress to vote forTARP in 2008 with a promise that he would put bankruptcy cramdown for mortgage debt at the top of his agenda once he took office. This is a president whose top aids boasted about “hippie punching” when they ditched the public option in the Affordable Care Act. This is a president who has explicitly put cuts to Social Security on the agenda, while keeping taxes on Wall Street speculation off the agenda.
And this is a president who decided to put deficit reduction, rather than job creation, at the center of the national agenda even though he knows the large deficits are entirely the result of the collapse of the economy http://www.bloomberg.com/news/2012-12-26/the-deficit-not-as-bad-as-they-want-you-to-think.htm. And of course he is the president who appointed former Senator Alan Simpson and Morgan Stanley Director http://www.morganstanley.com/about/ir/SECFilings/archive/proxy08/noticeandproxy.htm#tx82193_27 Erskine Bowles to head his deficit commission, enormously elevating the stature of these two foes of Social Security and Medicare.
Given the track record there is little doubt that President Obama can be trusted to make further concessions, possibly involving Social Security and Medicare, in negotiations on the debt ceiling. Oh well, at least we can have fun laughing at the experts being wrong about the fiscal cliff end of the world story.
January 1, 2013, 8:48 am
by Paul Krugman
To make sense of what just happened, we need to ask what is really at stake, and how much difference the budget deal makes in the larger picture.
So, what are the two sides really fighting about? Surely the answer is, the future of the welfare state. Progressives want to maintain the achievements of the New Deal and the Great Society, and also implement and improve Obamacare so that we become a normal advanced country that guarantees essential health care to all its citizens. The right wants to roll the clock back to 1930, if not to the 19th century.
There are two ways progressives can lose this fight. One is direct defeat on the question of social insurance, with Congress actually voting to privatize and eventually phase out key programs or with Democratic politicians themselves giving away their political birthright in the name of a mess of pottage Grand Bargain. The other is for conservatives to successfully starve the beast to drive revenue so low through tax cuts that the social insurance programs can’t be sustained.
The good news for progressives is that danger #1 has been averted, at least so far and not without a lot of anxiety first. Romney lost, so nothing like the Ryan plan is on the table until President Santorum takes office, or something. Meanwhile, in 2011 Obama was willing to raise the Medicare age, in 2012 to cut Social Security benefits; but luckily the extremists of the right scuttled both deals. There are no cuts in benefits in this deal.
The bad news is that the deal falls short on making up for the revenue lost due to the Bush tax cuts. Here, though, it’s important to put the numbers in perspective. Obama wasn’t going to let all the Bush tax cuts go away in any case; only the high-end cuts were on the table. Getting all of those ended would have yielded something like $800 billion; he actually got around $600 billion. How big a difference does that make?
Well, the CBO estimates cumulative potential GDP over the next decade at $208 trillion.So the difference between what Obama got and what he arguably should have gotten is around 0.1 percent of potential GDP. That’s not crucial, to say the least.
And on the principle of the thing, you could say that Democrats held their ground on the essentials no cuts in benefits while Republicans have just voted for a tax increase for the first time in decades.
So why the bad taste in progressives’ mouths? It has less to do with where Obama ended up than with how he got there. He kept drawing lines in the sand, then erasing them and retreating to a new position. And his evident desire to have a deal before hitting the essentially innocuous fiscal cliff bodes very badly for the confrontation looming in a few weeks over the debt ceiling.
If Obama stands his ground in that confrontation, this deal won’t look bad in retrospect. If he doesn’t, yesterday will be seen as the day he began throwing away his presidency and the hopes of everyone who supported him.
December 31, 2012, 2:48 pm 379 Comments
OK, I’ve had my own sorta-kinda briefing on the apparent fiscal cliff deal, and I’m pretty much with Noam Scheiber. Viewed on its own, it’s a bad and upsetting deal but not as terrible as initial rumors had it. But the strategic consequences are likely to be very bad indeed, and in very short order too.
As background, it’s important to understand what Obama clearly could have gotten just by going over the cliff. Basically, he could have gotten the whole of the Bush high-end tax cuts reversed, which would mean close to $800 billion in revenue over the next decade. What he couldn’t get, or at least couldn’t count on getting, were various spending items. This included the extension of unemployment benefits and various “refundables” on things like the Earned Income Tax Credit, that is, pieces of tax legislation that end up having the government cut checks to families instead of the other way around.
So what Obama appears to have done is trade away part of the revenue from high-income taxpayers in return for some of the spending items he wanted. Extended unemployment benefits for a year, and the refundables either extended in perpetuity or for 5 years.
The revenue loss seems to be on the order of $150 billion, or maybe a bit less. The reasons it isn’t bigger is that while the threshold for the top marginal rate is moving up to 450K, the thresholds for other things phaseout of deductions, higher taxes on dividends and capital gains aren’t going up, they’re staying at 250K.
And at least one positive thing can be said: no giveaway on Social Security, Medicare, or Medicaid. Basically, no spending cuts at all.
If you want think about the longer-term implications here, they’re ambiguous. The deficit is no problem right now, but there will eventually be a collision between the rising costs of social insurance programs and the inadequacy of the revenue base. Something will have to give.
There were two big risks, from a progressive point of view, in Obama’s eagerness to get a Grand Bargain. One was that he would allow the Bush tax cuts to be locked in, making it very hard to get additional revenue; the other was that he would give in on fundamental benefit cuts. Well, he did #1, partially, but didn’t do #2 at all. This sets up a future confrontation: it will be very hard for progressives to raise taxes, but also very hard for conservatives to cut those social programs.
I suppose the best case you can make here is that raising rates on the top 2 percent was never going to be enough anyway, so Obama getting less from that than he should have isn’t that big a deal. And the nightmare in which he cut Medicare and/or Social Security, only to have Republicans run against those cuts in 2014, seems to have been averted.
OK, now for the really bad news. Anyone looking at these negotiations, especially given Obama’s previous behavior, can’t help but reach one main conclusion: whenever the president says that there’s an issue on which he absolutely, positively won’t give ground, you can count on him, you know, giving way and soon, too. The idea that you should only make promises and threats you intend to make good on doesn’t seem to be one that this particular president can grasp.
And that means that Republicans will go right from this negotiation into the debt ceiling in the firm belief that Obama can be rolled.
At that point he can redeem himself by holding firm but because the Republicans don’t think he will, they will play tough, almost surely forcing him to actually hit the ceiling with all the costs that entails. And look, if I were a Republican I would also be betting that he’ll cave.
So Obama has set himself and the nation up for a much uglier confrontation than we would have had if he had set a negotiating position and held to it.
Update: I should mention that on one issue, the estate tax, the problem is apparently with the Senate; there are, unfortunately, some heartland Dem Senators who are extremely solicitous of the handful of super-wealthy families in their states, so that Obama’s people don’t think they can get a majority for higher taxes here. It’s bizarre: states like New Jersey have far more large estates, not just total but per capita, than states like Montana, but it’s the Senators from the latter that are eager to preserve the inherited privileges of the few.
By Robert Borosage | January 1, 2013
Early this morning, the Senate passed the fiscal cliff deal by 89-8, a margin virtually guaranteeing that it will survive in the House. The deal has some good parts. It lets the Bush tax cuts expire on the wealthy, raises the estate tax marginally and increases taxes on capital gains and dividends a bit. Unemployment benefits are extended for a year. Tax boosts for the low paid workers – the child tax credit, expanded earned income credit, refundable tuition tax credits – are extended, if only for five years. Social Security, Medicare and Medicaid are not touched.
But no one should be fooled. This is an ugly deal, with foul implications for the coming months.
LEADING HOUSE REPUBLICAN SAYS OBAMA’S DEAL GAVE AWAY ALL HIS LEVERAGE
Rep. Tom Cole (R-OK)
Today on MSNBC, leading House Republican Rep. Tom Cole (R-OK) said that Obama’s tax deal that extends tax cuts even for people making $30,000 a month and enacts a weaker estate tax than otherwise would’ve gone into law has resulted in the President giving away all his leverage:
December 31, 2012, 9:51 p.m. ET
CEOs' Deficit Push Falters in Political Echo Chamber
Uninformed Politicians Pushing US Toward Austerity
Tuesday, 01 January 2013 09:30By Paul Krugman, Krugman & Co. | Op-Ed
Louisiana Governor Bobby Jindal speaking at a news conference earlier this month to announce a deal for the construction of a new energy plant in Westlake, Louisiana. (Photo: Michael Stravato / New York Times)Some of us had fun with a recent Business Insider poll finding that by a large margin, people who thought they knew something about the fiscal cliff believed that it would increase, not reduce, the deficit.
Hahaha although I actually have a lot of sympathy for ordinary voters, who don't follow these things closely but know that everyone important has been warning for years that the budget deficit is Worse Than Hitler or something. How are they supposed to know that those very same people are now screaming that the deficit is coming down too fast? I have less sympathy for major political figures who also can't get it straight.
As Jonathan Chait, a commentator at New York magazine, pointed out recently, Bobby Jindal the Republican governor of Louisiana, who is supposed to be one of the intellectual leaders of his party wrote a recent op-ed for Politico on the cliff that sure looks as if he has no idea whatsoever what is about. There's nothing in that piece even hinting that the looming problem is spending cuts and tax increases that will shrink the deficit too soon; and his big policy ideas would actually make the lurch to austerity worse.
The White House is moving towards striking a deal that would only end the Bush tax cuts on incomes above $400,000 while enacting a watered-down estate tax. These measures offer a major tax cut to the rich over what is currently set to take place in 2013.
Major progressive groups denounced this proposal in statements and emails today.
Progressive Change Campaign Committee (PCCC):
On behalf of nearly a million progressives nationwide, we wanted to emphasize that this is a moment to stand on principle.
There has always been room for negotiation, but throughout this debate progressives have had 2 bright-line positions: Tax rates on those making $250,000 must go up to at least the Clinton rates and there must be no cuts to Medicare, Medicaid, and Social Security benefits.
The president ran on and won on $250,000 twice. Voters across the country overwhelmingly agree with the $250,000 threshold (see http://2014polling.com). And in real human costs, the billions lost by raising the threshold to $400,000 will come out of the pockets of grandparents and working families across the nation. Meanwhile, individuals making over $30,000 per month would get a tax break.
Democrats hold the cards, and our leverage increases in less than 10 hours if we hold strong.
The public is paying attention, and we urge all Democrats to stand on principle at this moment. The current deal violates progressive principles. It should be opposed. Adam Green and Stephanie Taylor, PCCC co-founders
MoveOn (excerpt from e-mail to members):
MoveOn members have consistently stood behind President Obama’s campaign pledge to return the tax rates for the wealthiest Americansthose making more than $250,000 a yearto what they were under President Clinton. A last-minute deal like the one reported in the press could make the Bush Tax Cuts permanent for those making $450,000 a year.
When Republicans tried to cut Social Security, MoveOn members responded with such immediate and loud outrage that those cuts are now off the table. We need to step up againand fast, since a deal is being worked out this very moment, and some members of Congress are considering how they’ll act.
Can you call Senators Amy Klobuchar and Al Franken right now? Tell them: “Do not extend tax breaks for people making more than $250,000 a year.” [...]
MoveOn members have had two clear, simple lines throughout the fiscal negotiations: Tax rates on those making more than $250,000 a year must return to Clinton-era levels. No benefit cuts to Social Security, Medicare, and Medicaid. We can’t let up now, and neither should Democrats in Congress.
CREDO Action (excerpt from e-mail to members):
As painful as the status quo might be, it’s substantially better than any deal that has been floated thus far.
Clearly, President Obama and the Democrats could cut a better deal with Republicans in the next Congress with more Democrats in the House and the Senate, and the Bush tax cuts already expired.
We need to speak out and make sure Democrats in the Senate know that no deal is better than a bad deal that unneccessarily makes permanent Bush’s tax cuts for the richest Americans.
Pick up the phone and ask Sens. Feinstein and Boxer: Reject this new deficit reduction deal that extends the Bush tax cuts for the wealthiest Americans.
– Becky Bond, CREDO Action
UPDATE: Here’s a statement from The Other 98%:
From the beginning, we’ve said the same thing: 1. There’s no reason to sell out the New Deal for a Bad Deal. 2. There’s no reason to preserve Bush Tax Cuts that the rich never should have received in the first place. That President Obama and Congress would even consider one of these, much less full-throatedly propose both, speaks to just how incredibly removed our elected officials are from the reality of daily economic life in America.
A vote to cut any of the New Deal is grounds for a primary challenge. A vote to keep the most ill-advised tax cuts of the last century, when we will literally be in a better position to handle our long-term finances by Breakfast, all so we can do this again in a few months, is hardly better. No deal. ”
Meanwhile, the AFL-CIO president Richard Trumka tweeted, “Its not a good #fiscalcliff deal if it gives more tax cuts to 2 percent and sets the stage for more hostage taking.”
Obama’s Deal Is Possibly Not a Terrible Deal