Lisa Jackson departs the Environmental Protection Agency.
Written by Nate Birt and Boyce Thompson
Early in the morning Jan. 1, Congress passed fiscal cliff legislation that would avert a tax increase on individuals making less than $400,000 and couples earning less than $450,000. This also extends the current farm bill through September.
The legislation doesn’t address an increase in payroll taxes. To encourage spending during the recession, Congress temporarily lowered payroll taxes in 2011 from 6.2% to 4.2%. That expired Jan. 1, and payroll taxes have reverted back to 6.2%. A household earning $30,000 will have $50 less to spend per month.
Fiscal cliff bill brings tax code changes and extends farm policy
Individuals making $250,000 and married couples earning $300,000 or more also face a tax increase. In a nod to President Barack Obama, who had pledged during his campaign to raise taxes on households earning $250,000 or more, the legislation caps tax exemptions for individuals earning $250,000 or more. Tax advisers are anxiously awaiting the specific details of that provision.
The Obama Administration, which had proposed reducing the ceiling for those wanting to escape estate taxes from $5 million to $3.5 million, gave in on that issue. The bill leaves the threshold at $5 million. But it raises taxes on those estates from 35% to 40%. Also, in a significant concession, the legislation indexes the estate tax threshold to inflation rates.
The legislation would raise tax rates on capital gains and dividends for high-income earners as well. Rates for individuals making $400,000 or more and families earning $450,000 or more would increase from 15% to 20%. That’s in addition to the 3.8% increase that is already slated to go into effect from the health bill. The increase in capital gains and dividend income rates is far less than the 39.6% that was first proposed by the Obama administration.
In a prelude to a possible fight in the House, Rep. Chris Van Hollen, (D-Md.), the ranking Democrat on the House Budget Committee, said indexing would raise the threshold to $7.5 million for individuals and $15 million for households by 2020. He called the bill a "sweetheart giveaway to the wealthiest 7,200 estates in the country," according to the Washington Post.
The bill also delays automatic sequestration for two months. Without such a provision, automatic cuts to federal agency budgets—in the 8% to 10% range—would have taken effect Jan. 3. In order to pay for the two-month reprieve, the plan devotes $12 billion in new tax revenue and $12 billion in spending cuts, split equally between defense and domestic programs.
The bill also does the following:
- raises income tax rates from the current 35% to 39.6% for individuals making more than $400,000 and couples making more than $450,000.
- caps itemized deductions for individuals making $250,000 and married couples earning $300,000.
- extends tax breaks for those paying college tuition.
- continues unemployment insurance for a year for 2 million people.
- permanently adjusts the alternative minimum tax to inflation.
- renews tax credits for those paying child care, tuition and research and development.
- reimburses doctors who accept Medicare patients.
- extends current farm policies through September.
- increases from 15% to 20% tax rates on capital gains and dividend income for individuals making more than $400,000 and families earning $450,000 or more.
EPA Faces New Leadership
Environmental Protection Agency (EPA) administrator Lisa Jackson stepped down from her post early this year, creating questions about what policy changes might be ahead for farmers.
- February 2012