By the looks of things, it would appear the folks down on Wall Street love the little piece of legislation that passed Wednesday. But I don’t blame you if it leaves you asking “what exactly did they pass?”
While Congress did finally pass legislation that prevented the dreaded Fiscal Cliff. What exactly went down? I had written way back in 2012 (Ok, three weeks ago!) that this would most likely involve some compromise and lots of pushing off to 2013. Please, don’t confuse me with Nostradamus, but that is exactly what went down.
Predicting that this government will do nothing until the final possible moment is not really predicting anymore than my guess it is currently raining in Belgium.
Predicting that they would do something at the final possible moment and it would be mostly nothing and the issues faced would be punted further into the future is akin to predicting my dog Marney is hungry right now. She is a Labrador. She is always hungry.
If you’d like some facts and figures on what really did get passed, please click here. You can also scroll to the bottom of this post.
For those of you who just want the 30-second version, here goes.
Our tax code, still bafflingly idiotic, is where most of the important changes took place. The Alternative Minimum Tax was finally dealt with properly. Many of the Bush Era tax cuts were either extended or made permanent. Temporary cuts for business will go on at least one more year. If you make more than $400,000 annually (please call me if you do or know someone who does!) you were painted with a red target and obliterated by this bill. But most of us will only see some slight tax increases.
What was not solved by our ineffectual leadership is much. The deficit remains enormous and this bill actually will increase it. The debt ceiling of $16 trillion was reached a few days ago. Now the Treasury is using accounting trickery to pay bills. But guess what, that all dries up by the end of February.
Our spending is still insanely high compared to revenue. Our entitlements were not reduced, shifted, changed or modified or means-tested. The so-called ‘sequester’ which ‘forced’ the government to find spending cuts was simply punted until March. Just wait for both debt and sequester to come up again in February – “Fiscal Cliff- part Deux!”
The markets were clearly relieved by the fact something was done. But it won’t be long before they get worried that nothing fundamental has truly been accomplished. Nearly all of what had the world concerned remains at issue. The way Congress acts, we can be assured another round of brinkmanship If it weren’t so frustrating, it would be funny. Does it remind anyone of a this hilarious Monty Python skit? Who is the Republican? Who is the Democrat? More important, who is the dead parrot?
More specifics on the Cliff –
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012. Key issues in the legislation include:
- The Bush-era tax cuts will expire for individuals making more than $400,000 and for married couples filing jointly making more than $450,000. The tax bracket for these filers will increase from 35 percent to 39.6 percent.
- For those with income below these levels, the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent tax brackets will remain in place.
- Capital gains and dividend rates will increase to 20 percent for individuals and married couples filing jointly above the filing thresholds of 400,000 and $450,000, respectively.
- Below these levels, the 0-percent (for taxpayers in the 10 percent and 15 percent tax brackets) and 15-percent rates (for everyone else) are made permanent.
- The bill did not extend the 2-percent payroll tax cut for all taxpayers.
- The alternative minimum tax (AMT) exemption amounts are made permanent. The current exemptions of $33,750 for individuals and $45,000 for married couples filing jointly are increased to $50,600 and $78,750, respectively, indexed for inflation. This new AMT fix is retroactive for the 2012 tax year.
- The itemized deduction phase-out threshold begins at $250,000 for single tax filers and $300,000 for married couples filing jointly. The personal exemption phase-out will have the same threshold amounts.
- The lifetime gift exemption and estate tax exemption will remain unified at $5 million (or $10 million per married couple), with portability remaining permanent. This will continue to be indexed for inflation. The estate tax rate schedule increases the rates for estates larger than $500,000, imposing a marginal rate of 37 percent through $750,000, a marginal rate of 39 percent through $1 million, and a marginal rate of 40 percent for values in excess of $5 million.
- The child, earned income, and American Opportunity tax credits have been extended through 2017.
- Unemployment benefits for the long-term jobless have been extended for a year.