Updated 11:30 p.m. ET
Legislation to avert the fiscal cliff has passed both chambers of Congress. The Senate passed it in the first few hours of 2013 and the House approved it shortly before midnight Tuesday. President Obama will soon sign it into law.
In short, the bill lets a variety of taxes increase for affluent Americans, averts most middle class tax hikes and leaves entitlement programs untouched. Here’s a rundown of the details, according to a White House summary.
The bill permanently extends existing tax rates on incomes under $400,000 for individual filers and $450,000 for joint filers. Tax rates on incomes above that level rise by 3.6 percentage points to 39.6 percent. The capital gains and dividend tax on those upper incomes will rise to 23.8 percent.
There is also a permanent fix for the Alternative Minimum Tax, which will protect some upper-middle class families from higher rates. Individuals earning $250,000 and couples earning $300,000 will enjoy fewer itemized tax deductions. The tax for estates worth $5 million or more will rise from 35 to 40 percent.
The bill extends tax credits originally passed in the 2009 stimulus bill for parents raising children (expansions of the Earned Income Tax Credit and Child Tax Credit) and those who are paying for a child’s college tuition (American Opportunity Tax Credit). It also continues the Production Tax Credit for companies that produce renewable energy.
The deal lets the Social Security payroll tax rise by 2 percent in 2013, which will cost a taxpayer earning $50,000 a year an additional $1,000, roughly.
The package extends emergency unemployment compensation through 2013, preventing some 2 million jobless people from losing their benefits. A 27 percent pay cut to physicians under Medicare is averted for one year — the perennial “doc fix” problem — and offset by cutting reimbursements to other health care providers.
Automatic cuts to defense and domestic spending — the sequester passed in the 2011 debt limit law — are postponed for two months. The $24 billion price tag is paid for with a 1:1 ratio of revenue increases and spending cuts elsewhere in the budget.
There are no cuts to Social Security, Medicare or Medicaid in the agreement.
The deal extends the farm bill through September so as to avert a spike in the price of milk.
Relative to existing policies, the tax provisions yield $620 billion over 10 years, according to the Joint Committee on Taxation. Relative to what would happen if no action is taken, the deal would increase the deficit by $3.9 trillion, according to the Congressional Budget Office.