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Tuesday, January 1, 2013

Fiscal Cliff: What’s In The Senate Deal?

Here’s some highlights from the Senate deal on the fiscal cliff passed early Tuesday morning:

-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.

Guest:

  • Bryan Bender, Boston Globe Washington national reporter. He tweets @GlobeBender.

Please follow our community rules when engaging in comment discussion on this site.
  • Mike

    What is a “job creator”?   Do people go into business to create jobs or create profit?

  • Robin Y

    Since this conversation today, we’ve had this clarification on the itemized deductions.
    Earlier we thought there was to be a cap, McClatchy and the New York Times are reporting
    that those deduction will eventually also be phased out.

    We’re not sure if that means eliminated, or made smaller as incomes go up.
    but here it is:
      

    McClatchy:
    For single filers with taxable income above $250,000 and couples $300,000,
    the tax credits and deductions enjoyed by most Americans would be phased out
    starting at those thresholds. The deal limits the total number of personal tax
    exemptions they can claim when filing income taxes, and limits the value of the
    itemized tax deductions they take.

Robin and Jeremy

Robin Young and Jeremy Hobson host Here & Now, a live two-hour production of NPR and WBUR Boston.

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