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Details of Fiscal Cliff Agreement Approved by Senate

00:56AM Jan 01, 2013

via a special arrangement with Informa Economics, Inc.

Senate approves plan, 89-8 | House to vote Tuesday

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The Senate early Tuesday approved, 89-8, the fiscal cliff agreement plan and it now moves to the House, which will debate and vote on the measure Tuesday. The Joint Committee on Taxation estimated it would reduce federal revenue by $3.93 trillion over the next decade compared to current law. 

Those voting against the agreement: Five Republicans and three Democrats voted against the bill: Sens. Michael Bennet (D-Colo.), Tom Carper (D-Dela.), Chuck Grassley (R-Iowa), Tom Harkin (D-Iowa), Mike Lee (R-Utah), Rand Paul (R-Ky.), Marco Rubio (R-Fla.) and Richard Shelby (R-Ala.).


Sens. Jim DeMint (R-S.C.), Mark Kirk (R-Ill.) and Frank Lautenberg (D-N.J.) missed the vote.


The details of the fiscal cliff agreement on mostly tax-related issues contain the following:

Income taxes: Permanently extend all the 2001 and 2003 tax rate for individuals with annual incomes below $400,000 and couples with incomes below $450,000; rates for those with incomes above those thresholds would rise to 39.6 percent from 35 percent.

Payroll tax: The plan would end the two-percentage-point payroll-tax cut that was part of a deal President Barack Obama struck with Republicans late in 2010. It lowered to 4.2 percent from 6.2 percent the employee portion of the Social Security tax, allowing workers to keep more take-home pay. For an individual earning the maximum 2013 cap of $113,700 or more, the increase would be nearly $200 per month. Overall, the expiration of this stimulus would cost working Americans $125 billion a year, according to J.P. Morgan Chase.

Alternative minimum tax (AMT): Permanently patch the alternative minimum tax and prevent the parallel tax system from creeping further into the middle class and eliminate the near annual debate on indexing the income exemption levels.

Dividends and capital gains: Permanently extend the 15 percent top tax rate on dividends and capital gains for individuals with annual incomes below $400,000 and couples with incomes below $450,000; increase the top tax rate on dividends and capital gains to 20 percent for those with incomes above those thresholds. The highest earners will actually see that rate rise to 23.8 percent because of an additional 3.8 percent investment tax included in the 2010 health care overhaul.

PEP and Pease deduction caps: Permanently extend a phase-out of the personal exemption and limit the availability of itemized deductions for individuals with annual incomes above $250,000 and couples with incomes above $300,000. These are commonly known as PEP, for personal exemption phase-out, and Pease for the late former Rep. Don J. Pease, an Ohio Democrat who helped write the itemized deductions limit. Under former President George W. Bush, these deduction caps were suspended.

Estate tax: The estate tax will have a $5 million individual exemption (double for spouse), with additional inheritance taxed at 40 percent. The exemption will be indexed to rise with inflation.

Unemployment benefits: Additional benefits for the long-term unemployed are extended through the end of 2013. Those benefits expired on Friday.

Business tax credits: Retroactively renew a package of one- or two-year reauthorizations of tax "extenders," which range from a credit for business research and development expenses to a state and local sales tax deduction that the Senate Finance Committee adopted in August (S 3521) with bipartisan support. The agreement reportedly includes a two-year extension of the lapsed biodiesel tax incentive program -- retroactive to 2012, and then 2013.

Stimulus tax credits: A five-year extension of tax credits largely used by lower- and middle-class workers that were expanded as part of the stimulus, including the Child Tax Credit, Earned Income Tax Credit and the American Opportunity Tax Credit that provides up to $10,000 for four years of college.

Bonus depreciation: Extends for one year the 50 percent bonus depreciation allowing businesses to write off the entire cost of major purchases in the year they are made rather than depreciate those expenses over many years.

"Doc fix": Stops a 27 percent reduction in payments to Medicare providers using spending cuts as offsets.

2008 Farm Bill extension. The agreement would include a one-year (through Sept. 2013) extension of the 2008 Farm Bill -- one major exception was the SURE program was not reauthorized at all. It would include direct payments for 2013 crops. It would not include language for a controversial new dairy gross margin/supply management program but instead extends the Milk Income Loss Contract (MILC) program effective 9/30/2012 to 9/30/2012. MILC was restored to its pre-9/1/2012 parameters, costing $110 million. This was offset by a $110 million reduction in the Nutrition Education and Obesity Prevention Grant Program. Regarding disaster provisions, the bill makes funding discretionary – an authorization for appropriations, but no mandatory funding. The bill's language authorizes, but does not actually fund, the following: $80 million for livestock indemnity payments; $400 million for the livestock forage disaster program; $50 million for emergency assistance for livestock, honey bees, and farm-raised fish; $20 million for trees assistance. For the 37 farm programs that lost their base, the package authorizes but does not fund those programs. The same is true for energy-related programs via the 2008 Farm Bill. "This is Mitch McConnell's farm bill" said Senate Ag Chairwoman Debbie Stabenow, who said she would vote for the overall agreement but is "on record that I am not happy with what was done to agriculture."


Budget Sequester: Negotiators have agreed to postpone the automatic spending cuts known as the sequester for two months. The $24-billion cost of delaying the sequester would be offset by other cuts so as not to add to the deficit. The deal pays for delaying the sequester with a mix of new taxes and spending cuts, according to a person familiar with the matter. Reportedly, $12 billion of that would come from a shift in the rules affecting workplace-based 401(k) plans. The remaining $12 billion was paid for with spending cuts.

Congressional pay: The agreement would prevent a hike in congressional pay that was authorized by an executive order from President Obama raising federal worker pay.


Here is the basic table of contents of the fiscal cliff legislation


Subtitle A—Tax Relief

Sec. 101. Permanent extension and modification of 2001 tax relief.

Sec. 102. Permanent extension and modification of 2003 tax relief.

Sec. 103. Extension of 2009 tax relief.

Sec. 104. Permanent alternative minimum tax relief.




Sec. 201. Extension of deduction for certain expenses of elementary and secondary school teachers.

Sec. 202. Extension of exclusion from gross income of discharge of qualified principal residence indebtedness.

Sec. 203. Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.

Sec. 204. Extension of mortgage insurance premiums treated as qualified residence interest.

Sec. 205. Extension of deduction of State and local general sales taxes.

Sec. 206. Extension of special rule for contributions of capital gain real property made for conservation purposes.

Sec. 207. Extension of above-the-line deduction for qualified tuition and related expenses.

Sec. 208. Extension of tax-free distributions from individual retirement plans for charitable purposes.

Sec. 209. Improve and make permanent the provision authorizing the Internal Revenue Service to disclose certain return and return information to certain prison officials.




Sec. 301. Extension and modification of research credit.

Sec. 302. Extension of temporary minimum low-income tax credit rate for nonfederally subsidized new buildings.

Sec. 303. Extension of housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds.

Sec. 304. Extension of Indian employment tax credit.

Sec. 305. Extension of new markets tax credit.

Sec. 306. Extension of railroad track maintenance credit.

Sec. 307. Extension of mine rescue team training credit.

Sec. 308. Extension of employer wage credit for employees who are active duty members of the uniformed services.

Sec. 309. Extension of work opportunity tax credit.

Sec. 310. Extension of qualified zone academy bonds.

Sec. 311. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.

Sec. 312. Extension of 7-year recovery period for motorsports entertainment complexes.

Sec. 313. Extension of accelerated depreciation for business property on an Indian reservation.

Sec. 314. Extension of enhanced charitable deduction for contributions of food inventory.

Sec. 315. Extension of increased expensing limitations and treatment of certain real property as section 179 property.

Sec. 316. Extension of election to expense mine safety equipment.

Sec. 317. Extension of special expensing rules for certain film and television productions.

Sec. 318. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.

Sec. 319. Extension of modification of tax treatment of certain payments to controlling exempt organizations.

Sec. 320. Extension of treatment of certain dividends of regulated investment companies.

Sec. 321. Extension of RIC qualified investment entity treatment under FIRPTA.

Sec. 322. Extension of subpart F exception for active financing income.

Sec. 323. Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.

Sec. 324. Extension of temporary exclusion of 100 percent of gain on certain small business stock.

Sec. 325. Extension of basis adjustment to stock of S corporations making charitable contributions of property.

Sec. 326. Extension of reduction in S-corporation recognition period for builtin gains tax.

Sec. 327. Extension of empowerment zone tax incentives.

Sec. 328. Extension of tax-exempt financing for New York Liberty Zone.

Sec. 329. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.

Sec. 330. Modification and extension of American Samoa economic development credit.

Sec. 331. Extension and modification of bonus depreciation.




Sec. 401. Extension of credit for energy-efficient existing homes.

Sec. 402. Extension of credit for alternative fuel vehicle refueling property.

Sec. 403. Extension of credit for 2- or 3-wheeled plug-in electric vehicles.

Sec. 404. Extension and modification of cellulosic biofuel producer credit.

Sec. 405. Extension of incentives for biodiesel and renewable diesel.

Sec. 406. Extension of production credit for Indian coal facilities placed in service before 2009.

Sec. 407. Extension and modification of credits with respect to facilities producing energy from certain renewable resources.

Sec. 408. Extension of credit for energy-efficient new homes.

Sec. 409. Extension of credit for energy-efficient appliances.

Sec. 410. Extension and modification of special allowance for cellulosic biofuel plant property.

Sec. 411. Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities.

Sec. 412. Extension of alternative fuels excise tax credits.




Sec. 501. Extension of emergency unemployment compensation program.

Sec. 502. Temporary extension of extended benefit provisions.

Sec. 503. Extension of funding for reemployment services and reemployment and eligibility assessment activities.

Sec. 504. Additional extended unemployment benefits under the Railroad Unemployment Insurance Act.




Subtitle A—Medicare Extensions

Sec. 601. Medicare physician payment update.

Sec. 602. Work geographic adjustment.

Sec. 603. Payment for outpatient therapy services.

Sec. 604. Ambulance add-on payments.

Sec. 605. Extension of Medicare inpatient hospital payment adjustment for lowvolume hospitals.

Sec. 606. Extension of the Medicare-dependent hospital (MDH) program.

Sec. 607. Extension for specialized Medicare Advantage plans for special needs individuals.

Sec. 608. Extension of Medicare reasonable cost contracts.

Sec. 609. Performance improvement.

Sec. 610. Extension of funding outreach and assistance for low-income programs.



Subtitle B—Other Health Extensions

Sec. 621. Extension of the qualifying individual (QI) program.

Sec. 622. Extension of Transitional Medical Assistance (TMA).

Sec. 623. Extension of Medicaid and CHIP Express Lane option.

Sec. 624. Extension of family-to-family health information centers.

Sec. 625. Extension of Special Diabetes Program for Type I diabetes and for Indians.



Subtitle C—Other Health Provisions

Sec. 631. IPPS documentation and coding adjustment for implementation of MS-DRGs.

Sec. 632. Revisions to the Medicare ESRD bundled payment system to reflect findings in the GAO report.

Sec. 633. Treatment of multiple service payment policies for therapy services.

Sec. 634. Payment for certain radiology services furnished under the Medicare hospital outpatient department prospective payment system.

Sec. 635. Adjustment of equipment utilization rate for advanced imaging services.

Sec. 636. Medicare payment of competitive prices for diabetic supplies and elimination of overpayment for diabetic supplies.

Sec. 637. Medicare payment adjustment for non-emergency ambulance transports for ESRD beneficiaries.

Sec. 638. Removing obstacles to collection of overpayments.

Sec. 639. Medicare advantage coding intensity adjustment.

Sec. 640. Elimination of all funding for the Medicare Improvement Fund.

Sec. 641. Rebasing of State DSH allotments.

Sec. 642. Repeal of CLASS program.

Sec. 643. Commission on Long-Term Care.

Sec. 644. Consumer Operated and Oriented Plan program contingency fund.




Sec. 701. 1-year extension of agricultural programs.

Sec. 702. Supplemental agricultural disaster assistance.


Sec. 901. Strategic delivery systems.
Sec. 902. No cost of living adjustment in pay of members of congress.

Subtitle A—Modifications of Sequestration
Sec. 1001. Treatment of sequester.
Sec. 1002. Amounts in applicable retirement plans may be transferred to designated Roth accounts without distribution





NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.