The U.S. House of Representatives voted, 257 to 167, to approve the U.S. Senate bill to avert the so-called “fiscal cliff” by, inter alia, permanently extending the Bush-era tax cuts for all but the highest tax bracket.
The bill now awaits the signature of President Obama.
Under the Senate package:
– Taxes would stay the same for most Americans. But they will increase for individuals making more than $400,000 and couples making more than $450,000. For them, it will go from the current 35% to the Clinton-era rate of 39.6%.
– Itemized deductions would be capped for those making $250,000 and for married couples making $300,000.
– Taxes on inherited estates will go up to 40% from 35%.
– Unemployment insurance would be extended for a year for 2 million people.
– The alternative minimum tax — a perennial issue — would be permanently adjusted for inflation.
– Child care, tuition and research and development tax credits would be renewed.
– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.
– A spike in milk prices will be avoided. Agriculture Secretary Tom Vilsack said milk prices would have doubled to $7 a gallon because a separate agriculture bill had expired.
Now it’s up to the House.
Sources told CNN over the weekend that Boehner’s latest proposal dropped Republican opposition to two key demands by Obama — higher tax rates on the wealthiest Americans and an automatic extension of the federal debt limit.
Definitely a retreat on statements by the Republicans about not increasing rates.
To illustrate when the tax applies, the IRS offered an example of a taxpayer filing as a single individual who makes $180,000 in wage income plus $90,000 from investment income. The individual’s modified adjusted gross income is $270,000.
The 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes, the IRS said.
Draft regulations can be found here and here. An FAQ can be found here.
Click on the graphic to see a larger version on Cook & Cook’s main website.
New York Times:
For the truly wealthy, the tax benefits can be considerable. Consider what Ms. Kroch calculated for someone with $15 million. She assumed that the person gave $5 million to a dynasty trust — meaning a trust that lasts for at least 100 years — and kept the other $10 million in his own name. Ms. Kroch then assumed a 6 percent rate of return over 25 years and an estate tax of 55 percent with a $1 million exemption — what it will be next year unless Congress acts.
The $5 million in the trust would grow to $21.45 million, while the $10 million would become $42.9 million — $26 million of which would go to estate taxes. If the person kept the entire $15 million, it would grow to $64.37 million over the same period, but the estate tax would be $35 million. Put simply, using the gift tax exemption this year would save that person’s estate $9 million in taxes.
For the risk-averse wealthy, the numbers are fairly convincing.
The top individual rates are going up. Will they go all the way to the 39.6% rate? That depends on what deal the Republican House can cut; the president wants the lower-bracket Bush-era cuts to remain in place, but not the top rate cuts. I suspect the president won’t blink like he has before, and at best the Republicans will save face by keeping the rates from going all the way off. They may not even get that. I really hope I’m wrong.
Get the popcorn ready, this’ll be interesting.
The federal deficit has grown so large that tax increases only on America’s millionaires will not be our silver bullet. Even if the government took all of the income earned by those who have an after-tax income of $1 million or more, the amount of revenue generated would fall far short of eliminating the deficit.
While the concept seems a bit ludicrous, the idea that taking all of the income from the very-wealthy will not solve the deficit problems, ignoring how that would affect production and consumption, is illustrative of the fiscal problems this country faces.