From tax hikes to a two-month delay in sequestration.
At around 2 a.m. on New Year's Day, the Senate passed a measure aimed at pulling the country back from the "fiscal cliff" of automatic tax hikes and spending cuts. The measure, hammered out by Vice President Joe Biden and Republican Senate Minority Leader Mitch McConnell, still needs approval by the House. Here's what's in it:
- Higher taxes on individuals earning $400,000 or more and families making $450,000 or more. Under that threshold, the Bush-era tax cuts would be permanent for all but the wealthiests households. The $450,000 threshold for families is a significant increase from Democrats’ initial proposal to raise taxes on Americans making $250,000 or more but it is lower than Republicans’ earlier proposal to raise taxes on households making $1 million or more.
- Tax rates on capital gains and dividends would rise for wealthier households. Taxes on capital gains and dividends would be held at their current levels of 15 percent for individuals making less than $400,000 and households with income of less than $450,000. They would rise to 20 taxpayers and households above those thresholds.
- Automatic spending cuts delayed for two months. The sequester, which would impose steep, across-the-board cuts to domestic and defense programs, would be delayed for two months.
- One-year extension to unemployment insurance. Emergency unemployment benefits would be extended for a year. The extension was a priority for President Obama and congressional Democrats.
- One-year "doc fix." The measure would put off scheduled cuts in physician payments under Medicare.
- Personal exemptions phased out for households making over $250,000. Personal exemptions would be phased out and itemized deductions would be limited for taxpayers making over $200,000 and families earning more than $250,000.
- 40 percent estate tax. The estate tax is set to rise permanently to 40 percent from its current 35 percent level, with the first $5 million in assets exempted. Democrats had earlier sought a higher increase to 45 percent and a lower exemption of $3.5 million.
- Permanent fix to the Alternative Minimum Tax. The alternative minimum tax was levied to ensure the wealthiest Americans paid a fair share of taxes. It was not indexed for inflation but is usually “patched” annually to prevent an increasingly large swath of middle-class Americans from being caught in its net. As part of the fiscal deal, the AMT would be permanently indexed for inflation.
- Tax breaks for working families. The deal includes extensions of the American Opportunity Tax Credit, which can be claimed for college-related expenses; the Child Tax Credit; and the Earned Income Tax Credit, which is a refundable federal income tax credit for low-to-moderate income working Americans.
- Business tax breaks. The Senate Finance Committee passed a package in August that tackled a variety of routinely expiring tax provisions known as extenders. These include popular tax breaks including those for research and development. That package might now pass as part of the broader cliff deal.