Fiscal Cliff (Nearly) Averted

Shortly after midnight on Jan. 1, the Senate swiftly passed – by a vote of 89-8 – the American Taxpayer Relief Act of 2012 to avert the fiscal cliff. However, when the action turned to the House, drama ensued as many members of the Republican Party tried the equivalent of a legislative “mulligan.”   More than 21 hours after the Senate passed the bill, House Democrats were able to provide enough votes to pass the bill unamended, 257-167. Out of the 167 dissenting votes, 151 were Republicans who wanted a better deal.   This morning, President Obama signed the legislation into law. Before Christmas, Republicans failed to back a bill (the so-called “Plan B” legislation) put together by Speaker Boehner that would have given House Republicans some leverage in negotiations with the White House.  Without the leverage of a strong House Republican position on the fiscal cliff legislation, the negotiation was forfeited by the House and left to be worked out between Senate Republicans and the White House. With no time left to negotiate the House Republicans had the option of taking the legislation negotiated between the Senate and the White House or take responsibility for the biggest tax increase in History as the Bush tax cuts expired and the sequestration into effect.  In the end, the bill passed and many House Republicans wanted a “mulligan” on their early decision to not support the “plan B” proposal.  The bill provides both tax relief and tax certainty. It permanently reinstated the Bush tax cuts for all, but reinstates the highest marginal income tax rate of 39.6 percent for individual’s whose income is above $400,000 and for joint incomes above $450,000.  The bill permanently separates dividend and capital gains rates from earned income rates and sets the top estate tax level at 40 percent with an exemption level of $5 million per decedent.  The bill also permanently patches the Alternative Minimum Tax. The bill did not extend the payroll tax cut, but it did extend the emergency unemployment benefits for one year.  It also generally extends corporate tax breaks typically included in an “extenders” package for one year, including bonus depreciation, accelerated depreciation for restaurants and retail properties and credits for renewable energy facilities.  The bill also delayed the imposition of the sequester by two months.  AGC estimates that the full imposition of the sequester would cut public construction spending by at least $6 billion this fiscal year. This bill sets the stage for tax reform later this year with the business tax breaks expiring at the end of 2013.  The passage of the bill also leaves in place current entitlement spending policies. It does not deal with the needed increase in the debt limit.  It also does not deal with federal spending after March 27, 2013.  The 113th Congress convened today and has inherited a lot of work from the 112th. For more information, please contact Jeff Shoaf at (202) 547-3350 or shoafj@agc.org.