The White House and the Senate have finalized the details of their deal to avert the fiscal cliff. The bill basically follows the framework that came out earlier this afternoon from the McConnell-Biden talks, with key additional details. Here’s the rundown of what it’s likely to look like:
— Tax rates will permanently rise to Clinton-era levels for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at Bush-era 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 for those at the $450,000/$400,000 threshold, with a $5 million exemption. That threshold will be indexed to inflation, as a concession to Republicans and some Democrats in rural areas like Sen. Max Baucus (D-Mt.). * Refer to correction at the bottom of this page.
— The sequester will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they’re moved over.
— The pay freeze on members of Congress and all other federal civilian employees, which Obama had lifted this week, will be re-imposed.
— The 2009 expansion of tax breaks for low-income Americans will be extending, continuing a more generous Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit.
— The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.
— The deal will not address the debt-ceiling, and the payroll tax holiday will be allowed to expire.
— Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000. * Refer to correction at the bottom of this page.
—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.
— A nine-month farm bill fix will be attached to the deal, Sen. Debbie Stabenow told reporters, averting the newly dubbed milk cliff.
* Correction: An earlier version of this post said that the PEP threshold would reinstated at $250,000 and Pease would be at $300,000. For both it’s $250,000 for singles and $300,000 for families. The estate tax also applies to all filers, not just those above the $450,000/$400,000 threshold.
By Suzy Khimm in The Washington Post