Congress Passes Year-End Tax Compromise, Delays Spending Cuts
Both the U.S. Senate and the U.S. House of Representatives Jan. 1 passed legislation to permanently extend Bush-era tax policies for most income levels, softening the blow of the fiscal cliff after allowing individual rates to expire for nearly 24 hours. The House approved the Senate-led compromise late New Year’s Day after hours of grumbling among the rank and file as to the absence of spending cuts. Ultimately 85 House Republicans joined 172 Democrats to pass the measure, which cleared the Senate 89-8 just hours into the New Year.
Among the key tax policies addressed by H.R. 8:
- Permanent extension of 2012 marginal rates up to $400,000 for singles and $450,000 for married couples, which reverts to 39.6 percent.
- Permanent extension of 2012 top rate of 15 percent on capital gains and dividends up to $400,000 for singles and $450,000 for married couples, which reverts to 20 percent.
- Permanent estate tax rate of 40 percent (up from 35), while maintaining $5 million exemption.
- Permanent indexing of the Alternative Minimum Tax for inflation.
- Retroactive and one-year extension of various business tax expenditures, including
* 50 percent bonus depreciation
* Increased Section 179 expensing limit
* Research and development tax credit
- Extension of 2009 Stimulus tax credits for five years.
In addition, H.R. 8 repeals the CLASS Act entitlement for long-term care, provides for a one year “fix” of the Medicare sustainable growth rate, and extends for one year federal emergency unemployment compensation.
The bill also delays the scheduled sequestration cuts by two months, setting up a second spending cliff for March, when the government-funded continuing resolution expires along with administrative measures to avoid default on the public debt. While the President has warned that he will not negotiate on the debt ceiling, Republicans are expected to use the presumptive increase as leverage to exact steep cuts to entitlements and other spending.
ABC has scheduled a webinar for 2 p.m. on Wednesday, Jan. 16 to analyze the deal and what its provisions means for construction contractors and their 2013 tax planning.