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Fiscal Cliff Deal Explained

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

Tags: air, budget, cliff, defense, fiscal, force, military

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Contributor Comment by Roger O'Daniel on January 8, 2013 at 10:58pm: @thx 1138 v2 The numbers are for the 2013 taxable year. Congress was in crisis mode and was not thinking ahead. Obama wanted to get past the lame duck congress so he could get whatever he wants. Boehner had no negotiating power. They kicked the fiscal cliff down the road for a couple of months so the new Democratic controlled Congress could shake off the Republicans.

If you read Karl Marx, you will find that he hated money. He wanted to build a utopian society that did not need money. Each citizen received a share of worldly goods based upon their need as defined by government. Each citizen was required to give to the government their time and talent based upon their ability. Everybody would work for the government. There would be no individual freedom because everything would be decided for them by somebody else. Government ( in the final stage of Karl Marx's utopia, would become the people's king and god. People who could no longer serve the government had no useful value.

Comment by thx 1138 v2 on January 8, 2013 at 7:36pm: Does anyone know if these numbers are adjusted for inflation? If they are not then once hyper-inflation kicks in it will take $450K to house and feed a family of four. The everyone who works will be in that tax bracket.

Comment by Kathy O'Donnell on January 8, 2013 at 5:30pm: Starting at $300,000 income a family will also lose its personal exemptions --- but many groups like film makers, etc. continue to get their 'welfare' tax breaks.......

by the way someone wrote that we are a 'Capitalist Democracy' -- actually we are a Republic. I too was taught in school that we are a democracy a lot of years ago -- but that was WRONG! the leftist infiltrated our schools many years ago.........

Comment by Debrajoe Smith-Beatty on January 8, 2013 at 5:26pm: The government does not need our money. If we keep giving them money they will continue to spend and ask for more taxes.

Comment by CW Foster on January 8, 2013 at 4:57pm: @ Gil Payne, I'm not convinced they DID! Consider a few facts:

Colorado has a few counties with 148-160% voter turnout.

Ohio had instances of voting machines turning Romney votes into Obama votes, and some precincts in the Cleveland area had NOT A SINGLE vote for Romney!

Pennsylvania had 56 precincts with NOT one vote for Romney in the Philadelphia area alone, and in many OTHER precincts, GOP poll watchers were ejected... why?

Florida had massive excessive voter turnout on the traditional Democrat counties along the East Coast, and around Miami (140-170%)

In compliance with a 1983 court settlement involving the GOP in a NEW JERSEY GUBERNATORIAL race, the GOP is constrained from ever accusing or implying that voter fraud had any effect on the results of an election! Look it up! The judge (a Carter appointee) comes out of retirement every year for one day to reaffirm the ruling!

Net result: if you flip the electoral count of those four states alone, you almost reverse the balance of electoral votes in the 2011 presidential election, with ROMNEY on top! (the end result is maybe 10-20 votes closer, but Romney ends up with over 300, and Obama with below 230!) I'm not convinced that the election wasn't totally STOLEN!

Comment by Richard Cancemi on January 8, 2013 at 4:49pm: Obama is The Liar in Chief of the USA. (LICOTUS).
The Democratic party, (AKOO) arse kissers of Obama (LICOTUS) who perpetuates all the Progressive/Socialist lies that Obama brought to his office from his evil Mentors.
The Republican Party Elitists are the Acting Servants of Obama (ASOO). and tacitly rubber stamp his wishes.
So, what do we have? ASOO + AKOO + LICOTUS = Death of the Constitution, Death of Bill of Rights, Death of Individual and Corporate Freedoms, Death of the most successful Form of Government, Death of America.
This will have been brought about by seditious,traitorous people in and out of government who only have Evil in their hearts!

Comment by CW Foster on January 8, 2013 at 4:37pm: @ Phil McConathy, How many 'last chances' is the GOP going to get? They're at 15 or 20 by my last count.

@ Harry Hansen, thank you, but no thanks. I don't think my kids are in so much danger that I'm ready to see armed, uniformed US Troops patrolling our streets! (not saying anything against the troops, I used to be one, but against the people currently issuing them orders, yeah.

@ Dale R. Smith, You've already drank some of the Kool-aid! We are NOT, and NEVER WERE a "democracy". The founding fathers considered a democracy and threw it out, as democracies ALWAYS failed throughout history. They founded a Constitutional Democratically Elected Representative Republic. They tried democracies in ancient Greece, and they all failed, the form of government the founders created was something totally new and unheard of. Read "The 5000 year Leap" it explains the logic process they used to arrive at the whole of the Constitution. BTW, Woodrow Wilson brought the term 'democracy' into vogue in describing our government, less than a hundred years ago.

Comment by Gil Payne on January 8, 2013 at 4:26pm: We have the destroyer of campitalism in the drivers' seat. The GOP needs a strong powerful voice, no more "Mr. Nice Guy" type as the speaker. Obama has made Speaker Boehner look like a lap dog in the negotiations. Boehner just does not project the strength thas is needed to counter the agressive and dictatorial Obama. On the other hand, the populace re-elected Obama because he promised them freebies for life.

Comment by CW Foster on January 8, 2013 at 4:25pm: I can simplify it even further, I already lost my job a YEAR ago because of pending sequestration cuts to defense programs. "Kicking the can down the road" again is best explained by: BOHICA (bend over, here it comes again, for those of you without military experience)

Comment by Jim Ashbrook on January 8, 2013 at 4:20pm: Beware. They are coming for more of our money and I don't think the current group of Republicans know what to do about it. We need more conservatives to replace the cowards.