Senate Deal Keeps Most Tax Cuts
The White House and Mitch McConnell have reached a tentative deal
early New Year's Day.
The measure would raise taxes by about $600 billion over 10 years and
delay for two months across-the-board spending cuts otherwise set to
begin slashing the budgets of the Pentagon and numerous domestic
agencies.
Highlights:
- Income tax rates:
Extends 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 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%, 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%.
- 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.
- 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.
- 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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