This afternoon news circulated quickly that even if the Republicans and Democrats in Congress could come to an agreement, it was unlikely that the House would be able to even vote on it until Tuesday. That is the day that taxes go up on all Americans, including a payroll tax holiday.
Meanwhile, over on the Senate side, Republican leader Mitch McConnell and President Barack Obama were haggling on how best to avoid the $109 billion in cuts to defense and domestic programs that were set to take effect Wednesday.
Also, if you were one of the millions of Americans relying on long-term unemployment benefits that were set to expire this weekend, you could kiss that money bye bye.
As Americans blissfully prepare to countdown the end of the year with New Year’s Eve celebrations, some still are unaware that a failure to agree will mean the money they were relying on to pay for their kid’s aftercare, for example, is getting ready to go away as the payroll tax holiday sunset and that money started to be deducted again from their paychecks. Extending the holiday was not even on the table which means that 125 million households can get ready to see their take home pay go down by 2%, according to The Tax Policy Center. The payroll tax rate will go up to 6.2% on the first $113,700 of earnings, up from 4.2% before the holiday was set as a sort of economic stimulus last year.
And if you are one of the 1.7 million Americans that work for the Federal government, you may be unaware that unless a deal is done, you may expect to start your 2013 with furloughs, shorter work weeks and a pay raise freeze should the automatic sequester cuts -the other part of the fiscal cliff take hold – kick in. African Americans and Hispanic Americans disproportionately work in the federal government so many in those community should brace themselves. According to a 2010 study by the U.S. Office of Personnel Management, Blacks make up almost 1 in 5 non-postal federal employees, or 17.5% while Hispanics 7.7%.
And by late evening, it looks as if the makings of a final deal have emerged.
The emerging deal would raise taxes on income and investments for wealthier Americans – those households making more than $450,000 a year or individuals earning more than $400,000– although the two sides remain at odds over the automatic spending cuts that make up part of the “fiscal cliff.”
- Rather than the $1.6 trillion in new revenue Obama hoped to rage from a gigantic deficit-reduction package, the deal would raise a mere $660 billion. Score one Republicans.
- Long Term Unemployment benefits would be extended for one year – Score Democrats
- The household income level for phasing out personal deductions would be set at $250,000, an option which would avoid the alternative of raising the tax rates on this threshold group. Score Republicans
- Other tax credits created by teh Obama econmic recovery plan would be extended for 5 more years including the $2,500 American Opportunity Tax Credit for college students, allowing families with children and household incomes below $45,000 who eventually owed no taxes to still receive a tax refund – Score Democrats
- Rather than taxes being raised on the $250,000 income household threshold as Obama wanted and promised in his 2012 campaign, the top tax rate will be set at 39.6% for household incomes above $450,000 and $400,000 for individuals – Score Republicans
The following represent compromise where there was a split in benefits and hits for both sides:
- Obama wanted investment income to be taxed at the same rate as earned income rather than its current historic low rate of 15%. Rather than change the way that income is taxed, the rate will go up to 20%
- President George Bush had virtually done away with the Alternative Minimum Tax, the part of our tax code which made it so high income earners would be forced to pay taxes and could not continue to deduct expenses.Congress will now permanently have to annually consider and adjust the ATM to account for inflation.
- The other major conflict involved the estate tax (or death tax as some call it). Democrats wanted the rate set at 45% and Republicans wanted 35%. The new deal would split the baby with the bath water and set it at 40%
With those major issues more or less dispensed with, Congress is ready and set to vote. The Senate is still talking into the night and the House will vote Tuesday.
And now…the rest of the nation waits for their elected officials to stop being stubborn and take a vote and accept the consequences for their actions. American citizens sure will have to, anyway.