Congress and the President Agree to Pull Back from the "Cliff"

Congress and the President Agree to Pull Back from the “Cliff”
Update from ITCA  – January 2, 2013

Late New Years Day, close to midnight, the House passed a compromise plan and sent a bill to the President for signature.  The bill passed the House by a vote of 257-167.  The Senate had passed the bill, "American Taxpayer Relief Act of 2012" by a vote of 89-8, after midnight on December 31, 2012.  Five Republicans voted “no” on the Senate bill. Three Democrats also voted “no” (Bennet (CO), Carper (DE) and Harkin (IA)) on the bill.

The final deal was crafted by Vice President Joe Biden and Senate Republican Leader Mitch McConnell of Kentucky.  If the plan had not passed the House last night, the Senate bill likely would have expired when the 112th Congress adjourned tomorrow.  This would have left resolution of the fiscal crisis to the new 113th Congress, convening on January 3rd.

White House Summary of the budget agreement can be found here.

Early information on the deal includes:

• All income for families up to $450,000 and for individuals up to $400,000 was protected at Bush-era levels. All income above that went back to higher levels.
• Sequestration cuts were delayed for 2 months. Half of the delay is offset by discretionary cuts, split between defense and non-defense.
• Unemployment insurance was extended for one year.
• Taxes on capitol gains and dividends are permanently set at 20% for those with income above the $450,000/$400,000 threshold and remain at 15% for everyone else.
• Nine month Farm bill extension prevents a spike in milk prices. 
• The estate tax is set at 40% for those at the $450,000/$400,000 threshold, with a $5 million exemption, indexed to inflation.
• The 2009 ARRA tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit are extended for five years.
• Alternative Minimum Tax is permanently patched.
• The payroll tax holiday expires.
• Scheduled cuts to physicians under Medicare are postponed for a year.

Some House Republicans stated they did not vote to approve the compromise because of the lack of spending cuts in the bill.  Earlier in the day, House passage was in doubt, with many discussing a possible amendment containing spending cuts. By last night when the vote was held in the House, the Senate had already adjourned. It was unlikely they would have considered the House bill, as revised. 

The President is expected to sign the bill into law shortly.  Significant debate and disagreement is expected in the coming weeks given the new sequester deadline, the approaching debt ceiling and the upcoming expiration of the FFY 2013 Continuing Resolution currently keeping the government funded.

Resources: 

AMCHP’s resources on sequestration go to: http://www.amchp.org/Policy-Advocacy/Sequestration/Pages/default.aspx

To view a comprehensive fact sheet about the legislation go to: http://www.whitehouse.gov/the-press-office/2013/01/01/fact-sheet-tax-agreement-victory-middle-class-families-and-economy