Posted on: 01st Jan, 2013 10:03 pm
The fiscal cliff deal has been passed by the Senate on Tuesday. The deal that has been passed will definitely extend the Bush-era tax cuts but may leave a range of various big issues still pending. For example the real tax and entitlement reform which are main factors to long-term deficit reduction hasn't been discussed in the proposal.
Nevertheless, here are few things which were included in the fiscal cliff deal:
Bush-era tax cuts may be permanently extended: It should be noted here that the Bush-era tax cuts would be extended permanently. This will be extended for people with an income up to $400,000 ($450,000 if married). Those who are above the said limit won't receive any tax cuts. Apart from this, the capital gains tax and the dividend tax rates will increase for high-income households. Earlier, it was 15%; now it will be 20%.
Protect middle class from AMT: The fiscal cliff deal has been designed in such a way that it will permanently adjust the income exemption levels for the Alternative Minimum Tax in relation to inflation. This will also help around 30 million middle class tax payers to avoid wealth tax for 2012.
High-income households to get capped for itemized deductions: The fiscal cliff deal, or Biden-McConnell compromise as it known as, will cap the itemized deduction amount would be for people with $250,000 (married couples making $300,000) income.
Nevertheless, here are few things which were included in the fiscal cliff deal:
Bush-era tax cuts may be permanently extended: It should be noted here that the Bush-era tax cuts would be extended permanently. This will be extended for people with an income up to $400,000 ($450,000 if married). Those who are above the said limit won't receive any tax cuts. Apart from this, the capital gains tax and the dividend tax rates will increase for high-income households. Earlier, it was 15%; now it will be 20%.
Protect middle class from AMT: The fiscal cliff deal has been designed in such a way that it will permanently adjust the income exemption levels for the Alternative Minimum Tax in relation to inflation. This will also help around 30 million middle class tax payers to avoid wealth tax for 2012.
High-income households to get capped for itemized deductions: The fiscal cliff deal, or Biden-McConnell compromise as it known as, will cap the itemized deduction amount would be for people with $250,000 (married couples making $300,000) income.
Apart from what Adonis has mentioned, there are some other benefits offered by the fiscal cliff deal. Let's take a look:
1. Hold on to key tax incentives for businesses: With the help of this bill, various tax breaks for business purposes will get extended for 2 years. This will also include the production tax credit for developers of wind projects. It also includes the research and development tax credit and has measures for bonus depreciation.
2. Hold on to expired tax breaks for individuals: The deal will extend some of the expired tax breaks like - option to deduct state and local sales taxes in place of state and local income taxes. It will also offer deductions for some expenses in case of elementary and secondary school teachers.
3. Permanently extend estate tax: The deal will preserve the current estate tax exemption level of $5.12 million but will index it to inflation for future years. And it would raise the top rate to 40% from 35% currently.
1. Hold on to key tax incentives for businesses: With the help of this bill, various tax breaks for business purposes will get extended for 2 years. This will also include the production tax credit for developers of wind projects. It also includes the research and development tax credit and has measures for bonus depreciation.
2. Hold on to expired tax breaks for individuals: The deal will extend some of the expired tax breaks like - option to deduct state and local sales taxes in place of state and local income taxes. It will also offer deductions for some expenses in case of elementary and secondary school teachers.
3. Permanently extend estate tax: The deal will preserve the current estate tax exemption level of $5.12 million but will index it to inflation for future years. And it would raise the top rate to 40% from 35% currently.
The Biden-McConnell compromise also includes the following:
Long-term unemployment benefits extended: The Biden-McConnell compromise will continue a federal extension of unemployment benefits for one year. If this would have not been done, then around 2 million people who have been unemployed for a long-term, would run out of benefits at the end of this year.
Medicare doctors' pay won't be reduced: This deal would prevent a scheduled 27% cut in reimbursement for Medicare services for 1 year. The so-called 'doc fix' would boost the deficit by $31 billion.
Substitute sequester for 2 months: The automatic and blunt spending cuts to defense and non-defense programs will be replaced for 2 months in 2013. However, it is not clear what Congress will decide to do about the sequester after the 2 months are up.
Long-term unemployment benefits extended: The Biden-McConnell compromise will continue a federal extension of unemployment benefits for one year. If this would have not been done, then around 2 million people who have been unemployed for a long-term, would run out of benefits at the end of this year.
Medicare doctors' pay won't be reduced: This deal would prevent a scheduled 27% cut in reimbursement for Medicare services for 1 year. The so-called 'doc fix' would boost the deficit by $31 billion.
Substitute sequester for 2 months: The automatic and blunt spending cuts to defense and non-defense programs will be replaced for 2 months in 2013. However, it is not clear what Congress will decide to do about the sequester after the 2 months are up.
Thank you Sara and Sussane for adding to what I had written. I personally feel that though big issues still remain pending, the issues that have been covered under the Biden-McConnell compromise to avoid the fiscal cliff is still quite commendable!!