Wednesday, January 2, 2013

Wednesday, January 2, 2013

Congress Approves Fiscal Cliff Deal

As you have probably heard by now, the House of Representatives passed a compromise bill last night to avert the worst effects of the fiscal cliff. Suffice it to say that people on the right and the left are unhappy with it. A lot of conservatives are upset because there are tax increases with virtually no spending cuts. Other cuts included in last year's sequester deal were delayed.

A lot of liberals are angry because it extends 98% of the Bush tax cuts, and mitigates onerous estate taxes that were set to take effect. Lefties like Paul Krugman, Howard Dean and Robert Reich are no doubt furious that the Bush tax cuts have been largely preserved.

Here is a quick summary of what is in the deal.

  • The top tax rate increases from 35% to 39.6% for individuals making $400,000 and married couples making $450,000.
  • Under this compromise, dividend and capital gains tax rates go up to 20% for those at the $400,000/$450,000 income levels.
  • In addition to these higher tax rates, personal exemptions will be limited for individuals making $250,000 and for families making $300,000. And the "Pease limitation" on deductions will be reimposed for individuals making $250,000 and families making $300,000.
  • The death tax (estate tax) will be 40% for estates valued at $5 million, and will be adjusted for inflation. Without this deal, the death tax would have been 55% on estates valued at $1 million.
  • The alternative minimum tax will be permanently adjusted for inflation, so Congress will no longer have to vote on a yearly AMT "patch."

In spite of all the media reporting, every worker and family will see a tax increase as their Social Security payroll taxes go up 2%. For many two-income middle class families, that means $2,000 less a year.

Don't Forget About Obamacare Taxes

While the media are fixated on this compromise bill, they have barely mentioned the trillion-dollar tax hike that is part of Obamacare. These huge tax increases on families and businesses are kicking in right now. Here is a partial list:

  • A new tax on medical devices ($20 billion)
  • Caps on Flexible Spending Accounts ($13 billion) -- This tax will hit families with children with special needs particularly hard.
  • A 3.8% tax on investment income ($113 billion)
  • Reduced Medical Itemized Deductions ($15 billion)
  • A 31% increase in Medicare Payroll Tax ($87 billion)

We will provide a more detailed report later today.