Lawmakers in the Senate late today beat the clock on the “fiscal cliff” of ending tax breaks that will prevent financial upheaval for most middle-income Americans in the new year.
The deal meets President Obama’s campaign promise of raising taxes on wealthier Americans and averting the worst effects of the cliff at the midnight deadline.
The House still has to approve the bill in a New Year’s Day session, a fate which is far from certain.
However, the Senate deal does not include an extension of the so-called payroll tax holiday. Paychecks for more than 160 million Americans will be 2 percent smaller starting in January, as the payroll tax will jump back to 6.2 percent from 4.2 percent after two years. Obama had initially proposed extending the payroll tax holiday, but later dropped that demand weeks ago as talks deadlocked.
Vice President Biden arrived at the Capitol just after 9 p.m. to discuss the details of the agreement he negotiated with Senate Minority Leader Mitch McConnell, R-Kentucky.
The heart of the fiscal cliff deal: current tax rates will be extended for all wage earners making below $400,000 and couples making below $450,000.
Households earning less than $450,000 would likely not see higher income-tax bills. However, couples earning more than $300,000 a year and individuals earning more than $250,000 would lose part of the value of their exemptions and itemized deductions, according to the terms under development.
That represents a concession for both parties, but mostly Republicans who didn’t support higher marginal rates for any wage earner. President Obama was seeking a threshold for tax increases at $250,000.
The other big component of the fiscal cliff, the so-called “sequester” of automatic spending cuts, was deferred for two months. Until then, federal spending levels will be offset by revenue increases and some spending cuts. The spending cuts will be siphoned in a 50-5- split between defense and non-defense budgets.
Nonetheless, Congress and the White House will arrive at another, albeit smaller, fiscal cliff in two months. At that time, they will have to come up with a broader deal on spending cuts,
Here are other details reported to be part of the deal:
- Permanently extends tax cuts made in 2001 by President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.
- The estate tax was set to jump from 35 percent to 55 percent in 2013. Instead, the new rate is at 40 percent, with the first $5 million worth of property exempt from being taxed.
- Capital gains tax: Capital gains and dividend tax rates will increase from 15 to 20 percent.
- Extends child tax credit, earned income tax credit, and tuition tax credit for five years.
- Extends unemployment insurance benefits for one year for 2 million people.
- Alternative Minimum Tax: a permanent fix is part of the agreement to avoid higher taxes for middle class families; a “patch” was needed to the AMT for inflation. Nearly 30 million households would be protected from paying the costly alternative minimum tax for the first time — either on their 2012 tax returns or future returns.
- Doctors will be shielded from a massive reimbursement gap for treating Medicare patients, referred to as the “doc fix.”
- Renewable energy tax credit for clean-energy companies will be extended for another year.
- Extends research and experimentation tax credit, and the wind production tax credit through the end of 2013. Extends 50 percent bonus depreciation for one year
Overall, the “fiscal cliff” plan would raise roughly $600 billion in new revenue over the next decade from the wealthiest 2 percent of households — less than Obama had been seeking, and less than House Speaker John A. Boehner, R-Ohio, had proposed in his earlier proposal.