TERRY SAVAGE: How the deal affects you
BY TERRY SAVAGE December 31, 2012 10:20PM
Reporters pursue Speaker of the House John Boehner, R-Ohio, as he walks to a closed-door meeting with GOP members of the House as Congress in Washington, Monday, Dec. 31, 2012, as Senate and House leaders rush to assemble a last-ditch agreement to head off the automatic tax hikes and spending cuts set to take effect Jan. 1, 2013. The House will miss the midnight Monday deadline lawmakers set for voting to avoid the "fiscal cliff." (AP Photo/J. Scott Applewhite)
Updated: May 3, 2013 12:15PM
It was conduct unbecoming to America, unbecoming to Congress — and unbecoming to the office of the presidency — as the nation lurched toward a tax and spending deal on Monday. In the end, it was left mostly undone as America officially went “over the fiscal cliff.”
Going over the cliff hasn’t started to hurt — yet. One day isn’t significant in a financial sense, because the markets are closed, and because corporate payroll departments can delay reprogramming their computers for tax withholding over the New Year’s day holiday.
Congress bought itself another day to deal. And the deal-making started for real late Monday night.
Yes, taxes have officially gone up now that we’re over the cliff. Ironically, now any vote taken by Congress to make a deal on taxes will be officially recognized as a tax cut. The optics make it easier to vote for cuts, rather than less of a tax increase.
Very little has been said about the mandated spending cuts, known as sequester. Wisely, many in Congress would prefer targeted cuts, which would spare essential services like defense. But that takes us right back to the beginning — which was the other half of the debate: Cutting spending. The biggest spending challenges — Medicare and Social Security — have not been mentioned in terms of this deal.
It looks like Congress may push that decision down the road — but only for another two months, when we will again bump up against our debt ceiling. That is the moment the world will be watching. Will we once again avoid the discipline of cutting spending? That will be a critical moment, not only for America but for the global financial system.
So, what’s the immediate impact on you, if the Senate deal passes the House on Tuesday?
† Payroll taxes: For sure, and for everyone, the payroll tax will return to 6.2 percent from 4.2 percent where it has been since 2010 — costing the average worker about $1,000 a year.
† Income taxes: If you earn over the likely $400,000 level, or $450,000 on a joint return, be prepared to pay a rate of 39.6 percent, up from the current 35 percent, leaving less in your paycheck as withholding taxes are increased.
† Capital gains taxes and taxes on dividend income would increase to 20 percent from 15 percent for those with income exceeding the $400,000 ($450,000 joint) level.
† Alternative Minimum Tax would be permanently indexed to inflation, so it will not hit most middle-income families.
† Child tax credit, earned income tax credit and $2,500 tuition tax credit would be extended for five years.
† Estate taxes: The latest version of the deal exempts $5 million of assets but raises the estate tax rate to 40 percent above that amount.
The deal will extend unemployment benefits for one year. And payments to doctors who serve Medicare patients would continue at current levels for a year.
Any Senate deal would still have to be ratified by the House, which is deeply divided. And, despite the laundry list of tax issues, the largest and most dangerous issues of spending and debt have still not been addressed in any significant way. That’s the Savage Truth.