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Democratic officials: Fiscal cliff deal reached

President Barack Obamgestures as he speaks about fiscal cliff Monday Dec. 31 2012 South Court Auditorium White House Washington. The

President Barack Obama gestures as he speaks about the fiscal cliff, Monday, Dec. 31, 2012, in the South Court Auditorium at the White House in Washington. The president said it appears that an agreement to avoid the fiscal cliff is "in sight," but says it's not yet complete and work continues. (AP Photo/Charles Dharapak)

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deal details

Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 percent, up from the current 35 percent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.

Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.

Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.

Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.

Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, earned income tax credit, and an up to $2,500 tax credit for college tuition. Also extends for one year accelerated “bonus” depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.

Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.

Cuts in Medicare reimbursements to doctors: Blocks a 27 percent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.

Social Security payroll tax cut: Allows a 2 percentage point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 percent.

Across-the-board cuts: Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $24 billion is divided between spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs.

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Updated: February 2, 2013 6:33AM



WASHINGTON — Racing the clock, the White House reached a New Year’s Eve accord with Senate Republicans late Monday to block across-the-board tax increases and spending cuts in government programs due to take effect at midnight, according to administration and Senate Democratic officials.

Under the deal, taxes would remain steady for the middle class and rise at incomes over $400,000 for individuals and $450,000 for couples — levels higher than President Barack Obama had campaigned for in his successful drive for a second term in office.

Spending cuts aimed at the Pentagon and domestic programs would be deferred for two months. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.

Democratic officials said that barring opposition from majority Democrats, a late-night Senate vote was possible on the deal, which was brokered by Vice President Joseph Biden and Senate Republican leader Mitch McConnell.

Passage would send the measure to the House, where Speaker John Boehner, R-Ohio, refrained from endorsing a package as yet unseen by his famously rebellious rank-and-file.

The House Democratic leader, Rep. Nancy Pelosi of California, issued a statement saying that when legislation clears the Senate, “I will present it to the House Democratic caucus.”

Without legislation, economists in and out of government warned of a possible recession if the economy were allowed to fall over a fiscal cliff of tax increases and spending cuts.

And while the deadline to act was technically midnight, Obama’s signature on legislation by the time a new Congress takes office at noon on Jan. 3, 2013 — the likely timetable — would eliminate or minimize any inconvenience for taxpayers.

Even by the dysfunctional standards of government-by-gridlock, the activity at both ends of historic Pennsylvania Avenue was remarkable as the administration and lawmakers spent the final hours of 2012 haggling over long-festering differences.

“One thing we can count on with respect to this Congress is that if there’s even one second left before you have to do what you’re supposed to do, they will use that last second,” the president said in a mid-afternoon status update on the talks.

As darkness fell on the last day of the year, Obama, Biden and their aides were at work in the White House, and lights burned in the House and Senate. Democrats complained that Obama had given away too much in agreeing to limit tax increases to incomes over $450,000, far above the $250,000 level he campaigned on. Yet some Republicans recoiled at the prospect of raising taxes at all.

A late dispute over the estate tax produced allegations of bad faith from all sides.

After hours of haggling, Biden headed for the Capitol to brief the Democratic rank and file.

Earlier, McConnell had agreed with Obama that an overall deal was near. In remarks on the Senate floor, he suggested Congress move quickly to pass tax legislation and “continue to work on finding smarter ways to cut spending” next year.

The White House and Democrats initially declined the offer, preferring to prevent the cuts from kicking in at the Pentagon and domestic agencies alike. A two-month compromise resulted.

Officials in both parties said the agreement would prevent tax increases at incomes below $400,000 for individuals and $450,000 for couples.

At higher levels, the rate would rise to a maximum of 39.6 percent from the current 35 percent.

The deal also would also raise taxes on the portion of estates exceeding $5 million to 40 percent. At the

insistence of Republicans, the $5 million threshold would rise each year with inflation.

Much or all of the revenue to be raised through higher taxes on the wealthy would help hold down the amount paid to the Internal Revenue Service by the middle class.

In addition to preventing higher rates for most, any agreement would retain existing breaks for families with children, for low-earning taxpayers and for those with a child in college.

The legislation leaves untouched a scheduled 2 percentage point increase in the payroll tax, ending a temporary reduction enacted two years ago to help revive the economy.

Officials said the White House had succeeded in gaining a one-year extension of long-term unemployment benefits about to expire on an estimated two million jobless.

It was unclear whether the legislation would prevent a 27 percent cut in fees for doctors who treat Medicare patients was unknown. Nor did officials immediately say if it would include a provision to block a near-doubling of milk prices.

Even as time was running out, partisan agendas were evident.

Obama used his appearance not only to chastise Congress, but also to lay down a marker for the next round of negotiations early in 2013, when Republicans intend to seek spending cuts in exchange for letting the Treasury to borrow above the current debt limit of $16.4 trillion.

“Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone — and you hear that sometimes coming from them ... then they’ve got another think coming. ... That’s not how it’s going to work at least as long as I’m president,” he said.

“And I’m going to be president for the next four years, I think,” he added.

Obama’s remarks irritated some Republicans.

Sen. John McCain of Arizona they would “clearly antagonize members of the House.”



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