The House of Representatives voted to pass H.R.8, called the American Taxpayer Relief Act of 2012, with a final vote count of 257-167. This measure was passed by the Senate yesterday, only an hour into the New Year with a final count of 89-8. This bill was passed as a conduit to avoid the fiscal cliff. Some tax relief measures were incorporated into the bill, including extending the Bush tax cuts for individuals making $400,000 or less, $450,000 for joint filers, and capital gains rates will remain at 15% for households making $400,000 or less. Unemployment benefits will also be extended into 2013, which will affect some two million Americans.
The markets liked the fact that a deal was agreed upon in order to avoid the fiscal cliff, and closed up over 300 points today. Neither Democrats nor Republicans walked away happy, and in many cases, even those who voted for the bill didn’t like the compromise. But crisis was avoided and now we can all relax, right? Think again. One major thing that this bill didn’t do was address spending cuts. This bill simply postponed dealing with the $110 million in automatic spending cuts until March of this year, when again, they will be scheduled to kick in. At that time, Congress will also need to review raising the debt ceiling, a point upon which President Obama has said he will not compromise.
While in name, this bill is about tax relief, it actually increases taxes on the lower and middle class. Or more accurately, it does not contain an extension of the payroll tax holiday. The 2012 rate of 4.2 percent will now go up to 6.2 percent. This means that anyone receiving a paycheck will see two percent more withheld from their paycheck in federal tax, a caveat that has been much overlooked, however, one that will undoubtedly have the most impact upon the lower and middle income wage earners.