It’s official. The United States will go over the cliff tonight—at least for a little while. The House announced they will not hold a late-night vote even if legislation cleared the Senate. Although it’s not confirmed, some sources are pointing to Obama’s ‘attitude and criticism of Congress’ during the press conference/pep rally he held this afternoon as reason for the adjournment.
Earlier today, Sen. McConnell said that he reached an agreement with Vice President Biden on the tax portion of the deal, which calls for individuals making $400,000 and families making $450,000 to see their rates rise to Clinton-era levels. This will put the estate tax rate at 40 percent for inheritances over $5 million. McConnell said that a broader agreement was “very, very close.”
In addition to the issue of tax rates, National Journal outlines what else is in the tentative deal:
· No change on capital gains and dividend tax rates for individuals making less than $400,000. Taxes on capital gains and dividends would be held at their current levels of 15 percent for taxpayers making less than $400,000. They would rise to 20 percent for those above that threshold. For families, the threshold is $450,000.
· PEP and Pease rules for individuals making over $250,000. The Personal Exemption Phaseout and “Pease” deduction cap would reduce exemptions and limit itemized deductions on taxpayers making over $250,000 or families earning over $300,000.
· 40 percent estate tax. The estate tax is set to rise permanently to 40 percent from its current 35 percent level, with the first $5 million in assets exempted. Democrats had earlier sought a higher increase to 45 percent and a lower exemption of $3.5 million.
· Patching the AMT, permanently. The alternative minimum tax was levied to ensure the wealthiest Americans paid a fair share of taxes. It is not indexed for inflation but is usually “patched” annually to prevent an increasingly large swath of middle-class Americans from being caught in its net. The AMT wasn't patched in 2012 but would be patched permanently as part of a fiscal cliff deal.
· Five-year extension of certain tax credits. Specifically, the American Opportunity Tax Credit, which can be claimed for college-related expenses; the Child Tax Credit; and the Earned Income Tax Credit, which is a refundable federal income tax credit for low-to-moderate income working Americans.
· Senate Finance Committee tax extender package. The Senate Finance Committee passed a package in August that tackled a variety of routinely expiring tax provisions known as extenders. That package might now pass as part of the broader cliff deal.
· One year extension of fifty-percent bonus depreciation. The provision lets businesses deduct the cost of certain equipment.
Spending cuts, however, will be postponed:
Senate Republican Leader Mitch McConnell (R-Ky.) has told GOP colleagues that negotiators have agreed to postpone the automatic spending cuts known as the sequester for two months. […]
McCain said the $24-billion cost of delaying the sequester would be offset by other cuts so as not to add to the deficit, but those details remain unresolved.
Sen. Bob Corker (R-Tenn.) said he thinks it’s “highly likely” that the Senate will hold a vote this evening.
“This is one of those things that could well go into the early morning by the time it goes to a vote. But I don’t think there’s a thought at present about trying to make this happen tomorrow. I think they’re attempting to get the legislative language in order and vote on it tonight, you know, 1, 2, 3, 4 in the morning, whatever.”
So, should you freak out about going over the ‘cliff’ tonight? Molly Ball over at The Atlantic puts it all in perspective:
Calm down. Yes, the House was headed home late Monday and would not vote on any prospective deal before the dawn of the New Year. Yes, that technically means we'll miss the December 31 deadline and "go over" the "fiscal cliff." But what does that mean? It means tax rates have gone up on the income taxes you don't have to file until April 2014; it means the government is supposed to start gradually implementing some cuts to programs. Both of these automatically-triggered events can be fixed retroactively by a vote in the next couple of days with no material effects. The biggest immediate danger of going over the "cliff" -- which the anti-cliff-alarmists have always preferred to call a "slope" or a "curb" for exactly this reason -- is that it would freak out the stock market. But the markets are closed until Wednesday, and investors aren't likely to panic as long as it's clear a deal is in the works.
Happy New Year!