While Congress failed to reach a national deficit reduction agreement by the end of last year, sending the United States over the “fiscal cliff,” the legislature was able to act quickly enough to avert the cliff’s immediate implications. A few hours into 2013, the Senate passed a fiscal cliff deal that was sent over to the House for final approval. Even though House Republicans objected to the deal’s lack of spending cuts, the American Taxpayer Relief Act was voted through last Tuesday night with bipartisan support One of the most highlighted provisions is the extension of the Bush-era tax cuts. All individuals earning less than $400,000 and couples earning under $450,000 will not see any income tax increases. This keeps tax rates constant for 98% of Americans and 97% of small business owners, avoiding a tax hike that many believed would throw the country back into recession. Other notable items included extensions on unemployment benefits, tax credits for college tuition, and tax credits for companies investing in renewable energy. Also included are increases in the capital gains tax, estate tax, and an increase in the top marginal tax rate from 35% to 39.6%.
However, several key items were not addressed in the legislation. The Budget Control Act of 2011 set automatic across-the-board cuts, known as sequestration, to take effect in 2013 if no other plan passed. With the American Taxpayer Relief Act, sequester cuts have been deferred until February in hopes that Congress will be able to agree on a more balanced approached to controlled spending. Also delayed is a decision on the federal debt ceiling. According to estimates from Treasury Secretary Timothy Geitner, the U.S. reached the debt ceiling towards the end of last year but will be able to cover its debts for the next two months. The legislation also did not extend payroll tax cuts, which will increase by 2% for all wage earners this year.
Neither party was particularly happy with the law’s limited provisions, but it has served to cover several key tax issues while buying time for further discussion on spending cuts. House Democrat Leader Nancy Pelosi commented in her support for the bill, “The American people told us in the election they wanted us to work together. They have their differences too. They understand disagreement. They also understand compromise, and that is what this legislation represents.”
In the short term, the law should bring some good news to the AAPI community. The extended tax breaks are sure to benefit middle class families and small business owners as they provide a little more economic stability and assurance. However, it is still uncertain how everything will play out as negotiations continue in Washington towards a more comprehensive deficit reduction plan.
For a full list of the American Taxpayer Relief Act’s provisions, click here.