Details of Tentative Deal Averting Fiscal Cliff

Monday, 31 Dec 2012 07:07 PM

 

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Highlights of a tentative agreement Monday between the White House and Senate Minority Leader Mitch McConnell aimed at averting wide tax increases and budget cuts scheduled to take effect in the new year. The measure would raise taxes by about $600 billion over 10 years compared with tax policies that expire at midnight Monday. Still unresolved is how to avert across-the-board spending cuts set to begin slashing the budgets of the Pentagon and numerous domestic agencies.

Highlights include:

  • 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, 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.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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