The Last Second "Compromise"

January 2, 2013

Tax rates will permanently rise to 39.6% for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at 2012 rates.

 

The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else.

 

The estate tax will be set at 40 percent, with the first $5 million exempt for individual estates and up to $10 million for family estates. That threshold will be indexed to inflation.

 

The bulk of the spending cuts (sequester) will be delayed for two months.

 

The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years.

 

The Alternative Minimum Tax will be permanently patched.

 

The temporary payroll tax cut expires. (Moving back up to 6.2% from 4.2%)

 

Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout will be set at $250,000 and the itemized deduction limitation kicks in at $300,000.

 

The full package of temporary business tax breaks — benefiting everything from R&D and wind energy to race-car track owners — will be extended for another year.

 

Scheduled cuts to doctors under Medicare would be avoided for a year through spending cuts that haven’t been specified.

 

Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks. This $30 billion provision won’t be offset.

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