What’s the deal? Highlights of fiscal cliff agreement

US Congress last night finally passed a deal to avoid the so-called fiscal cliff, as critics attacked the Republican party for giving in and allowing tax hikes on wealthy Americans in return for minimal spending cuts.

President Barack Obama was in a triumphant mood as he addressed the nation after the vote on Capitol Hill, even winking at photographers before flying back to Hawaii to resume his vacation.

  • 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%, up from the current 35%. Extends Bill Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 andcouples earning more than $300,000.
  • Estate tax: Estates would be taxed at a top rate of 40%, 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%.
  • Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15% to 20%.

US Congress finally passed a deal to avoid the so-called fiscal cliff

  • 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% 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%.
  • Across-the-board cuts: Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $24 billion is divided between spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs.
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Diane A. Wade

Diane is a perfectionist. She enjoys searching the internet for the hottest events from around the world and writing an article about it. The details matter to her, so she makes sure the information is easy to read and understand. She likes traveling and history, especially ancient history. Being a very sociable person she has a blast having barbeque with family and friends.

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