Capitol Hill was unusually busy the year-end and start of the new year as Members of the House and Senate addressed the most pressing facets of the “fiscal cliff.”
Most politicians sought to avoid the retaliation of their constituents for a New Year welcome that:
1. Ends the Bush-era tax cuts for everybody,
2. Launches sequestration along with its economic consequences, and
3. Threatens default or delay of entitlement checks like social security, unemployment benefits.
Congress failed to produce a comprehensive bi-partisan solution that would address long-term tax, spending, and deficit reduction issues. Vice President Joe Biden and Senate Minority Leader Mitch McConnell (R-KY) spent the weekend negotiating a focused response to the most pressing items. New Year’s Day began with the Senate voting 89-8 to pass the resulting legislation (HR 8). The House voted passage of HR 8 at 11:00 PM by a vote of 257-167. President Obama signed the legislation into law the following day.
Here’s a quick summary of the provisions:
- Bush-era tax cuts are permanently extended for individuals with income up to $400,000 for individuals, or $450,000 for couples.
- Tax rates increase from 35% to 39.6% for individuals whose income exceeds $400,000 or $450,000 for couples filing joint returns.
- Tax rates for capital gains and dividends increase from 15% to 20% for individuals whose income exceeds $400,000, or $450,000 for couples filing joint returns.
- The estate tax increases from 35% to 40% for individuals whose income exceeds $400,000, or $450,000 for couples filing joint returns.
- The alternative minimum tax “patch” becomes permanent. This provision sets exemption amounts for individuals earning up to $50,600, or $78,750 for couples filing joint returns..
- The 2% reduction in worker’s Social Security payroll tax expires. This provision was in effect for the past two years.
- The employer wage credit for activated military reservists continues unchanged. This provision equals 20% of the sum of differential wage payments to reservists.
HR 8 effectively defers over-arching sequestration spending cuts until March 27th, 2013. This is the same day that the current six-month continuing resolution ends.
- The original sequestration plan would have slashed $54B from Fiscal Year 2013 defense accounts.
- If an alternate plan satisfying the provisions of the 2011 Budget Control Act cannot be devised and passed in the next two months, the White House must order sequestration cuts on March 1st, 2013. These reductions would take effect on March 27th, 2013.
- HR 8 reduces the size of the defense cuts to $42 billion if one considers the timeline now in play for Fiscal Year 2013.. This top-line reduction leaves monthly cuts largely unchanged for the remaining fiscal year, at about $4.5 billion per month.
- A resolution about sequestration is now effectively tied to the debt ceiling debate, which also must be resolved by March.
HR 8 Bill Text: http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.8:
Congressional Budget Office Bill Analysis: http://www.cbo.gov/publication/43829