Senate Plan Undoes Most of $600 Billion in Budget Changes
The bipartisan budget deal passed by the U.S. Senate would undo most of the $600 billion in tax increases and spending cuts taking effect automatically. The House plans to take up the measure next, possibly to make revisions.
Here are the major provisions of the Senate bill:
While canceling a rise in income tax rates for most payers, it would raise rates on individuals above $400,000 and married couples above $450,000. That’s double the individual threshold Obama campaigned on, and 80 percent higher than his preferred level for married couples. The top income tax rate would rise to 39.6 percent from 35 percent.
The top rates on capital gains and dividends would increase to 23.8 percent, from 15 percent, starting at the same income thresholds. The new rate includes a 3.8 percent tax that starts today on top earners. Limits on personal exemptions and itemized deductions for top earners that had been phased out will return for individuals starting at $250,000 and married couples starting at $300,000.
The alternative minimum tax would be permanently revised to prevent it from expanding to more households.
Estates would receive a more-than $5 million exemption and 40 percent top tax rate, splitting the difference on rates sought by Republicans and Democrats. The exemption would be indexed for inflation.
Expanded unemployment benefits would be continued for a year, and tax breaks for low-income families would be extended. That would cost $30 billion, according to the nonpartisan Congressional Budget Office, and wouldn’t be offset with spending cuts.
The automatic federal spending reductions set to start with the new year would be delayed until March.
Half of the $24 billion cost of delaying the cuts would be covered by allowing 401(k) retirement account holders to convert some of their balances into Roth-style accounts that can be tapped tax-free in retirement, said a Senate aide familiar with the talks.
The change would raise revenue because people who do such conversions pay income taxes up front. The conversions aren’t currently allowed in 401(k) plans, the aide said.
The other half of the spending cuts would be prevented through replacement spending cuts, half in defense and half in non-defense programs, said Senator Sherrod Brown, an Ohio Democrat.
Miscellaneous tax breaks would continue through 2013, including benefits for corporate research, multinational companies’ overseas financing operations and wind energy. Many of those breaks had expired at the end of 2011. Companies would get 50 percent bonus depreciation.
The agreement wouldn’t avert all of the tax increases set to take effect this year. A two-percentage-point cut in the payroll tax has expired and isn’t part of the deal.
That will make paychecks smaller in 2013; someone earning $50,000 and being paid twice a month will lose $41.67 per paycheck. The payroll tax cut’s expiration will end transfers from the general fund to Social Security to cover its cost.
Tax increases on top earners’ wages and unearned income such as capital gains will take effect as a result of the 2010 health-care law.
The Senate-passed bill would prevent a cut in Medicare physician payments in 2013.
The bill would provide equal tax treatment of commuter transit and parking benefits, and would extend most farm subsidies until the end of September.
The Internal Revenue Service told employers late yesterday to withhold taxes from paychecks assuming that lapsing tax cuts would expire as scheduled and said it would issue updated tables if Congress passes an extension. Employers should implement the higher withholding by Feb. 15, the IRS said in a statement issued 12 minutes before midnight.
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