Fiscal cliff averted…for now
A partial fix to the “fiscal cliff” was agreed to and voted on as 2012 turned to 2013 and the 112th Congress came to a close. On Thursday the 113th Congress will be sworn in and they’ll need to get to work on coming up with a solution to the rest of the financial issues facing the federal government by the end of February.
Late Monday night, via successful negotiations between Vice President Biden and Senate Republicans, the Senate voted on a fix that dealt with most of the tax issues and punted on federal spending for two months. For most people income taxes in 2013 will be the same as they have been for the last decade. Any income above $400,000 for individuals or $450,000 for joint filers will see a modest increase. Capital gains and estate taxes will also see a small increase (though with an exemption of $5 million less than ¼ of 1 percent of estates are ever taxed) in their rates.
Most workers will see their taxes go up in 2013, though, and will feel that in their paychecks very soon. For the past two years everyone with income subject to the payroll tax (more commonly known as the Social Security tax) have been paying 4.2% out of their paychecks to the system. That tax cut expired in 2012 and everyone will begin paying the standard 6.2% in 2013. This one has its benefits and drawbacks. The payroll tax is fairly regressive – meaning it hits low-income workers more than high-income ones – because only the first $110,000 of income is subject to that 6.2% tax while everything above that is exempt. But for those who are interested in the long-term viability of Social Security, putting more money into the fund through the 6.2% rate is a good thing.
Congress punted on the federal budget though. Instead of allowing sequestration (the automatic across the board cuts to federal spending on domestic and defense programs) they extended current funding levels for another two months for the new Congress to come to a decision by the end of February. As we’ve discussed before, this is something we’ll continue to monitor because of vital programs that benefit LGBT people and their families.
While the overall merit and wisdom of the negotiated fix can be debated – and probably disliked by voters at all points in the political spectrum – one thing that will likely make most people nod in agreement was the inclusion of a provision that kept Members of Congress from getting a cost of living pay increase this year. Given the overall lack of productivity during the 112th Congress, that small bone seems like the least our electeds could do.