January 1, 2013
CBO on Fiscal Cliff Deal: $1 in Spending Cuts ($15 Billion) for Every $41 in Tax Increases ($620 Billion)
The Senate early this morning passed H.R. 8 by a vote of 89-8 to avert the fiscal cliff. The bill now moves to the House. Highlights of the bill include:
- Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
- Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single). The top rate would remain 15% for taxpayers with lower incomes.
- Estate and gift tax: $5 million exemption (inflation-adjusted) and 40% rate.
- Permanent and retroactive patch for the AMT.
- Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).
- One-year extension of 50% bonus depreciation.
- Extension of various tax extenders.
Revenue estimates from the Congressional Budget Office and Joint Committee on Taxation score the bill as adding $3.9 trillion to the deficit over ten years compared to existing (January 1, 2013) law. The White House has released this fact sheet and statement from President Obama.
Press and blogosphere coverage:
- Bloomberg, Senate-Passed Deal Means Higher Tax on 77% of Households
- Len Burman (Syracuse), Senate Bill Averts Fiscal Cliff--For Now--While Ignoring our Short- and Long-Term Fiscal Problems
- Breitbart, Fiscal Cliff Deal: $1 in Spending Cuts for Every $41 in Tax Increases
- Greg Mankiw (Harvard), President Rejects His Bipartisan Bowles-Simpson Commission
- Greg Mankiw (Harvard), The Neverending Quest for a More Redistributionist Tax System
- New York Times, The McConnell-Biden Plan
- New York Times, Senate Passes Legislation to Allow Taxes on Affluent to Rise
- Dan Shaviro (NYU), The Fiscal Cliff Deal
- Tax Policy Blog, Details of the Fiscal Cliff Tax Deal
- Tax Update Blog, New Year’s Day Special: Senate Passes Fiscal Cliff Bill in Wee Hours
- Tax Vox Blog, Congress Kicks the Fiscal Can off the Front Stoop
- Joe Thorndike (Tax Analysts), Is Obama the Worst Legislative Negotiator of the Last Century?
- Wall Street Journal, Details of Tax Law Changes Spelled Out
- Wall Street Journal, Fiscal-Cliff Focus Moves to House
- Washington Post, Everything You Need to Know About the Fiscal Cliff Deal
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So how does this score out? Are we looking at any serious reduction in the deficit in the near years? Or is this just kicking the can down the road?
Posted by: DonAZ | Jan 1, 2013 12:18:25 PM
Just curious, not that the courts actually care about this, but did this "H.R." actually originate in the House? Or was it another of those "Attach an old House number to a bill the Senate wrote" deals?
Posted by: Brett Bellmore | Jan 1, 2013 12:21:44 PM
Thieves & charlatans.
Posted by: Dennis Howell | Jan 1, 2013 12:40:44 PM
So you say that the AMT patch is 'permanent'. Does that mean that the AMT will no longer disguise the budget deficits?
Posted by: noone | Jan 1, 2013 12:47:10 PM
This may be a technicality, but is germane, especially for the point of view of conservatives. Since today is January 1, 2013, and thus the "Clinton Tax Rates" are in effect, doesn't the Senate deal, that the House will consider, lower taxes on everyone with income less than $400/$450k; lowers the long term capital gains to 15% for income earners under $400/$450k; etc.
Isn't the very title of HR8 (American Taxpayer Relief Act of 2012) a misnomer?
Posted by: fit2post | Jan 1, 2013 12:50:48 PM
"Isn't the very title of HR8 (American Taxpayer Relief Act of 2012) a misnomer?"
Who cares ? They didn't even read the bill before voting. I wonder if there are more "Easter eggs" in there besides the wind tax credit.
Posted by: Mike K | Jan 1, 2013 1:28:48 PM
Yet again this Administration, the Senate and the American Press will claim a victory using misinformation, deceit and outright lies....
Posted by: Chris L. | Jan 1, 2013 2:44:49 PM
This started as a deficit/debt reduction agreement over a year ago but became an "emergency" deal to avoid the fiscal cliff and, contrary to the original purpose, will result in higher deficits and debt -- mainly because cutting the growth of government was ignored. Perhaps the Tea Party and Grover Norquest Republicans, whose deaths were prematurely announced, will hold enough votes to kill this deal and force responsible cuts.
Posted by: Woody | Jan 1, 2013 7:15:01 PM
I can't believe they put PEP and Pease back in. This kind of complexity is everything that is wrong in our tax administration.
Posted by: Dave | Jan 2, 2013 12:31:57 AM
@DonAZ: Art. I, sec. 7, cl. 1 requires that all "Bills for raising Revenue shall originate in the House of Representatives;." This bill did not raise revenue; it reduces existing tax rates.
@Chris L: The law will result in a lower deficit than what would have happened if the Bush tax cuts had been made permanent across the board. In all likelihood, it will also result in a lower short and long term deficit that would have resulted from the so-called fiscal cliff. Why? Because if the sequester had gone into effect, the economy would have been pushed back into recession, thus reducing revenue collections and increasing the need for unemployment payments, Medicaid, etc.
The idea that we are going to get out of the long-term deficit problem (we do not have a short-term deficit problem) by austerity measures is absurd, as currently is being demonstrated by our friends across both the Eastern and Western Ponds. Ronald Reagan spoke the truth on economics only twice, but both statements were profound--on one of those occasions he opined that the only way out of budget deficits was to grow out of them. (The other one was when he said that corporations don't pay taxes; only people pay taxes.)
Posted by: Publius Novus | Jan 2, 2013 11:03:12 AM