Before the New Year, the White House and the Senate finalized the details of the deal that would help Americans avoid the Fiscal Cliff. The Fiscal Cliff is essentially the sharp decline in the budget deficit that could have occurred beginning in 2013 due to increased taxes and reduced spending as required by previously enacted laws.
There is a lot of misinformation about the Fiscal Cliff tax deal, so we decided to provide you with some of the highlights:
- Families with incomes above $450,000 a year and individuals above $400,000 will see their tax rates permanently rise to a Clinton-era top rate of 39.6% from 35%. All income below those levels will be permanently taxed at the current Bush-era levels, although tax deductions and credits would start phasing out on incomes as low at $250,000 a year.
- The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.
- The estate tax will be pegged at 40% for individuals above the $400,000 threshold, with a $5 million exemption, and couple above $450,000 with a $10 million exemption. Those thresholds will be indexed to inflation, as a concession to Republicans and some Democrats in rural areas.
- A 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, as will tax credits for low-income working families.
- Federal unemployment insurance will be extended for another year, benefitting those unemployed for longer than 26 weeks.