Congressional leaders and President Obama have reportedly agreed on a deal to stave off the fiscal cliff just hours before the deadline at midnight eastern time tonight. However, details of the agreement are still sketchy, and it is still not known whether the proposal could pass through both the House of Representatives and the Senate. Here is an outline of the what the two sides have agreed upon according to the most recent reports,
- Income tax rates would stay the same for all joint-filers with an income below $450,000 and individual filers with an income below $400,000. This represents a concession on both sides, as Democrats wanted rates raised on all income above $250,000, and Republicans wanted no tax hikes at all.
- Personal exemptions would also be phased out for individual filers with an income of $375,000 and joint filers with an income above $425,000. Individual deductions would be limited starting at $275,000 for joint filers and $325,000 for individual filers. In the past, the rich have been able to dramatically lower their tax rates through personal exemption and itemized deductions.
- The payroll tax cut would still expire, meaning most working Americans will see a 2 percent deduction in their paychecks starting next year.
- The capital gains tax rate would go up sightly to 20 percent from the current 15 percent tax rate.
- The estate tax would go up to 40 percent from 35 percent and only be applied to inheritances in excess of $5 million.
- Taken together, the new taxes that apply mostly to the rich would raise $790 billion over the next ten years. However, the bill also would extend unemployment benefits and tax credits such as the Earned Income Credit and the Child Tax Credit. As a result, the net deficit reduction of the package would be about $600 billion.
- The major part of the agreement still to be negotiated is what to do about the $1.2 trillion in scheduled spending cuts. Both sides want to delay the cuts, since Republicans want to avoid the defense spending cuts and Democrats want to avoid the cuts to social programs. What is still not agreed upon is how long to delay those cuts. Republicans only want the delay to last a few months, while Democrats would prefer a whole year.
Finally, even after a final agreement is made there are still questions about whether the package could pass. An objection by just one senator could delay passage, and Speaker Boehner have to agree to bring the bill to the floor in his chamber and garner the votes of some of his members along with a majority of Democratic representatives. Right now, the House is not scheduled to hold a vote on any fiscal cliff bill or any stopgap measure to prevent the tax rate hikes.