By Laura Saunders | Updated January 1, 2013, 12:17 a.m. ET
The tax changes included in the bill hashed out between the White House and congressional Republicans Monday includes the first increases in top income-tax rates in nearly two decades. They also set new thresholds for determining who is “rich,” while leaving most people’s tax rates unchanged.
“It appears nearly 99% of the population would see little or no change in their income taxes for 2013,” said Roberton Williams, an economist at the Tax Policy Center in Washington.
It is unclear how large tax increases will be for the 1%, he said, as important details have yet to be released. And the measure hashed out by Senate Minority Leader Mitch McConnell (R., Ky.) and Vice President Joseph Biden still must be approved in both the Senate and the House, where passage can’t be assured.
More at the link. The details:
- The Social Security payroll tax for individuals will rise from 4.2% to 6.2%, the ending of the “stimulus” provided for in the tax deal at the end of 2010. The tax is imposed on the first $113,700 of gross pay, and would raise approximately $125 billion per year.
- The top marginal rate for ordinary income would rise from 35% to 39.6%, at the threshold of $400,000 for single filers and $450,000 for a married couple filing jointly. It is not yet clear whether that threshold refers to adjusted gross income or taxable income.
- Current law would be permanently extended for income earned below that level.
- For taxpayers above the $400,000/$450,000 threshold, the tax rate on dividends and capital gains would increase from 15% to 20%. For taxpayers below the threshold, the current 15% top rate would be made permanent.
- The alternative minimum tax “fix” would be made retroactive and permanent.
- The current gift and estate tax threshold would remain at the current $5,000,000, but the top rate above that would be increased from 35% top 40%.
- The American Opportunity Tax Credit for college tuition of up to $2,500 would be extended for five years.
- The current versions of the $1,000 oer child Child Tax Credit and Earned Income Tax Credit would be extended for five years.
Your Editor approves of the first provision; it would require everybody to pay more in taxes. Your Editor disapproves of the second, which is simply class warfare targeting the most productive Americans. However, your Editor most definitely approves of the third, fourth and fifth provisions, for one big reason: they would make the current tax rates permanent, meaning that the Congress could not impose a tax increase without having to actually vote on one.
That was the biggest failing of the 2001/2003 tax cuts: they had a sunset provision, after which tax rates would revert back to the 2000 tax rates.
However, the “deal”:
includes virtually no new spending cuts and did nothing to defuse the next fiscal bomb—the fast-approaching debt ceiling, which will have to be addressed by Congress by late February or early March, administration officials believe.
The changes in tax rates that were agreed to between Messrs. Biden and McConnell would raise roughly $600 billion in new revenue over 10 years. While that would represent the largest tax increase in decades, it would be less than 20% of the revenue that would have come in if policy makers allowed all the current tax breaks to expire on New Year’s Eve.
The sequestration has been pushed two months down the road. So, we have minimal tax increases and, for now, no spending cuts. Overall, nothing was solved.
- The Pirate’s Cove: David Brooks: This Fiscal Cliff Deal Is Rather A Crapburger, Eh?
- The Lonely Conservative: Did Anyone In The Senate Read The Bill They Passed In The Middle Of The Night?
- Le*gal In*sur*rec*tion: Senate passes massive tax cut which raised taxes over $600 billion in middle of night without reading the bill
- Patterico’s Pontifications: Happy New Year: 41 Dollars of Taxes for Every Dollar of Spending Cuts