Highlights of a bill Congress passed Tuesday aimed at averting wide tax increases and budget cuts scheduled to take effect with the new year. The measure would raise taxes by about $600 billion over 10 years compared with tax policies that were due to expire at midnight Monday. It would also delay for two months across-the-board cuts to the budgets of the Pentagon and numerous domestic agencies.
The House and Senate passed the bill on Tuesday and sent it to President Barack Obama for his signature.
-Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 percent, up from the current 35 percent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.
-Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.
-Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.
-Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.
-Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, the earned income tax credit, and an up-to-$2,500 tax credit for college tuition. Also extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.
-Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.
-Cuts in Medicare reimbursements to doctors: Blocks a 27 percent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.
-Social Security payroll tax cut: Allows a 2-percentage-point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 percent.
-Across-the-board cuts: Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $24 billion is divided between spending cuts and new revenues from rule changes on converting traditional individual retirement accounts into Roth IRAs.
Speaker John Boehner and Senators Sherrod Brown and Rob Portman all supported the deal.
Sen. Portman released the following statement:
"I supported the fiscal cliff agreement because it stops huge tax increases from being imposed on the overwhelming majority of Ohio's families and job creators. "I am also pleased that the $1.2 trillion sequester put in place by the Budget Control Act will not be unwound. Although I will keep fighting to reallocate the across-the-board cuts in our defense programs, with the debt at record levels, Washington cannot let the spending cuts lapse. It is reassuring to see that we've also been able to stop the President's planned salary increases for Congress on the same day the Treasury tells us the US government has once again hit the nation's debt limit. "Now that the fiscal cliff has been averted, Congress and the Obama Administration must move forward on pro-growth tax reform and reform of the important but unsustainable entitlement programs."
Speaker Boehner released the following statement:
"The federal government has a spending problem that has led to a $16 trillion national debt that threatens our country's future. On the day after the election, I proposed that both parties work together to avert the fiscal cliff in a manner that would ensure 2013 is the year we finally enact entitlement reform and pro-growth tax reform to begin to solve our country's debt problem. Now the focus turns to spending. The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the 'balanced' approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt. Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble.
Republicans stand for a stronger, more prosperous America, rich in opportunity and free of the debt that threatens our children's future. On this New Year's Day, we renew our commitment to that vision, humbled by the opportunity to serve."