As the clock struck midnight for the 112th Congress, the United States House of Representatives followed the lead of their Senate counterparts and passed the American Taxpayer Relief Act of 2012, the fiscal cliff compromise legislation that had been hammered out by Vice-President Joe Biden and Senate Minority Leader Mitch McConnell (R – KY).
The overall agreement raises approximately $620 billion over the next ten years, with tax rates permanently raised to 39.6 percent for individuals earning more than $400,000/year and couples earning more than $450,000/year. In addition, capital gains and dividends are permanently set at 20 percent for individuals earning more than $400,000/year and couples earning more than $450,000/year – with rates for all other earners remaining at 15 percent.
Of consequence to the agriculture sector, the estate tax is permanently set at a $5 million exemption for individuals indexed for inflation – with a $10 million exemption for couples, at a 40 percent rate (compared to the previous rate of 35 percent. This is in sharp contrast to the $1 million exemption and 55 percent rate that would have kicked in had Congress taken no action. Stepped-up basis is already permanent law and will continue.
When it came to the $1.6 trillion in automatic “sequestration” budget reductions that would have begun in January, the leadership chose to punt the ball into the current congress. By delaying politically charged spending reductions until March 1, 2013 the public will again be witness to political and philosophical gamesmanship.
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