Senate Republicans and the White House have reached a deal on the tax portion of the “fiscal cliff” showdown, according to a senior Republican source, but spending remains an outstanding issue.
The basic parameters on the deal are as follows:
– Bush era tax rates would be made permanent on all income below $400,000 for individuals and $450,000 for families.
– The capital gains tax rate would permanently remain at 15 percent for income under $400,000 for individuals and $450,000 for families, and it would go up to 20 percent on income above that.
– There would be a permanent fix to prevent the Alternative Minimum Tax (originally intended to capture more taxes from a small number of millionaires) from hitting tens of millions of middle class families.
– The estate tax would be permanently set at 40 percent, with an exemption on estates below $5 million. The current rate is 35 percent, but that’s scheduled to rise to 55 percent after midnight and the exemption is slated to go down to $1 million.
– The personal exemption phaseout (known as PEP) and the limitation on itemized deductions (known as Pease after the Congressman who sponsored it) would be made permanent, with the thresholds at $250,000 for individuals and $300,000 for married couples.
– The current child tax credit would be extended five years and there would be a one-year extension of the special 50-percent depreciation allowance for businesses.
– The assumption is that the payroll tax holiday will expire.
Any deal would still have to gain the support of a critical mass of Republicans and Democrats in the Senate and House to actually become law and there still hasn’t been an agreement on the spending side.
Spending issues include — avoiding scheduled physician payment cuts under Medicare, extending unemployment insurance and replacing automatic spending cuts from the so-called sequester. Democrats have been reluctant to offer spending cuts to offset new spending.