In a late night vote on New Year’s Day, the House of Representatives approved a bill (H.R. 8) agreed to earlier in the day by the Senate, averting the so-called fiscal cliff.
“While far from perfect and long overdue, this legislation does accomplish several long sought after initiatives permanently cutting taxes for most Americans, including over four million New Jersey taxpayers,” said Smith, who voted for the compromise legislation. “The Joint Committee on Taxation estimates the bill reduces taxes by $3.92 trillion over 10 years.”
First, H.R. 8:
- extends the Bush-era and other income tax cuts for taxpayers who earn less than $400,000 for individuals and $450,000 for couples;
- includes a permanent fix that would once and for all prevent tens of millions of taxpayers—including 275,000 New Jersey taxpayers—from being subjected to the Alternative Minimum Tax (AMT);
- keeps in place the $5.12 million estate tax exemption, but does increase the maximum rate to 40 percent.
- (without action the estate tax would have reverted to the pre-2001 levels of 55 percent and just a $1 million exemption.
- does not include a proposal to use the so-called chained Consumer Price Index to compute Social Security and other benefits affected by Cost of Living Adjustments, and;
- extends the Medicare “Doc Fix” which prevents cuts to physician payment rates.
Secondly, a number of important business provisions were incorporated in the fiscal cliff agreement bill including the 50 percent bonus depreciation rules for property placed in service before the end of 2013 and an extension of Section 179 tax code rules that allow small businesses to more quickly recover the cost of certain capital expenses.
Third, in one highly debated portion of the bill, H.R. 8 extends through the end of fiscal year 2013 almost all of the existing federal farm policy provisions—thereby preventing farm policy from reverting to a 1949 farm law that would have dramatically increased the price of milk.
Fourth, the legislation did not fully deal with sequestration and most spending cut issues, instead postponing for two months automatic cuts to government spending that were set to occur on January 2, 2013. The total automatic sequestration for 2013 was estimated to be $109 billion divided between defense spending and non-defense discretionary spending. While postponing sequestration, H.R. 8 did offset $24 billion, reducing this year’s current sequestration to $85 billion.
“While we have come to an agreement on many of the key sticking points regarding taxes, it is now my hope that the Obama Administration can begin bargaining seriously and present significant spending cuts that can be implemented in order to bring deficit spending under control,” Smith said.
And finally, the bill extends modifications of the child tax credit (retaining the $1,000 level), education-related credits, most tax credits for home owner energy efficient initiatives, and prohibits any pay increase for members of Congress, thereby continuing the pay freeze first initiated in 2009.
Overall, the House and Senate’s Joint Committee on Taxation estimates that the bill would reduce taxes by $3.92 trillion over 10 ten years:
- $1.53 trillion from extending the 2001 and 2003 Bush tax cuts (kept all brackets in place, excluding the top tax bracket which went from 35 percent to 39.6 percent
- $1.82 trillion from making the AMT patch permanent.
- $370 billion from extending most of the current estate tax rules (kept the exemption at $5.12 million, indexed for inflation, but did increase the rate from 35% to 40%.
- $134 billion from extending stimulus law tax extensions.
- $76 billion from various tax extenders.
NJ residents affected by H.R. 8:
- Not fixing the AMT would have hurt an estimated 274,572 Garden State taxpayers
- Maintaining the Child Tax Credit (keeping the $1,000 child tax credit in place) and preventing it from being cut to $500, protects an estimated 700,000 New Jersey children.
- The Bush Tax Bracket Changes (keeping all the Bush tax brackets, excluding the top tax bracket which goes from 35 percent to 39.6 percent), protects over 4 million taxpayers who would be affected.
“President Obama and Sen. Harry Reid have refused to enact meaningful spending reductions to tackle the record debt that threatens the nation,” Smith said. “Under Majority Leader Reid’s leadership, the Senate never passed a budget. In only two months, we again approach the fiscal cliff, and I hope we can progress to a reasonable solution that addresses the out-of-control debt.”