House passes bill to avert Fiscal Cliff

[bUU]

It's our kids who will pay and I'm not happy about that.

I've been unhappy about that since I was a kid. While the degree of the problem has changed over time, it has been a problem for a very long time.

We should pay our own way - this country is on decline due to our lack of fiscal discipline and I'm not happy about that either.

To the extent that certain specific aspects of this nation are in decline (which itself is debatable), it would almost surely not be attributable solely due to lack of fiscal discipline. The vast majority of our "problem" can be tracked back to the fact that we've gotten used to exploiting our overwhelming financial and military power to artificially inflate our GDP. This has been going on for almost a century. The free ride is over - and has been over for a while - but we were weaned on a much richer economic environment. We weren't trained to expect and factor into our expectations the fact that other nations would learn to gain economic power from us, and that other nations would learn to resist our economic brow-beating, thereby resetting our source of riches to something closer to the boundaries of our own nation.

Fiscal discipline is part of the remedy, but that's like saying HRIG and HDCV are a cure for encephalitis. That knowledge does no good unless those afflicted come to learn that they're not invulnerable, that they actually do have a problem, that it is within themselves not someone else, that it needs to be treated, that the treatment is worthwhile even though it is going to hurt really bad for a good long while.

 

[audreyh1]

A nice summary of the legislation here Financial Planning Implications of HR8 - the Taxpayer Relief Act of 2012 - kitces.com | Nerd's Eye View

Thanks for the nice summary link. This was interesting:

The top tax bracket rises to 39.6%, and applies to income in excess of $400,000 for individuals, and $450,000 for married couples. These thresholds are indexed for inflation*(in a similar manner to all the other tax bracket thresholds). Notably, the $450,000 threshold for married couples is actually a slight form of marriage penalty release, as in the past the top tax bracket threshold was the same for both individuals and married couples. It's also notable that in practice, this change is effectively the same as just allowing the top tax bracket to lapse back to the old rates, as the top tax bracket was already at $388,350 in 2012 (and would have been just shy of $400,000 with the 2013 inflation adjustment). (Note: bear in mind that tax brackets are based upon taxable income*after all deductions, not Adjusted Gross Income.)

I didn't realize that the top tax bracket started at close to $400K anyway. Also didn't realize that those thresholds will be indexed to inflation. I assumed they were going for "bracket creep" again.

Another biggie for FIRE folks - estate tax exemption which was due to reset to $1M for individuals and a 55% top rate was changed to $5.1M per individual (now inflation indexed) and a 40% top rate which was the average of the two competing proposals. It was $5M and 35% in 2012. Again - permanent - no sunsetting.

 

[Steven]

Does anyone know if the 0% capital gains tax rate for those in the 10% tax bracket will remain in effect ?

 

[audreyh1]

Does anyone know if the 0% capital gains tax rate for those in the 10% tax bracket will remain in effect ?

MichaelB's link indicates that yes, the 0% rate is now permanent. Other things i read indicated it goes to 10%, but those are probably now obsolete.

 

[scrabbler1]

The funny thing is that Grover Norquist supported the deal and viewed it as a tax cut, since it technically took place after Dec. 31.

Just as important was Norquist not threatening anyone who voted against the bill with a primary. He was taken out of play so the Republican House members were finally "free" to vote their consciences, and the resulting non-lopsided split got the bill passed.

 

[Midpack]

As usual I am having a devil of a time finding the actual $ impact of the bill. While the bullet point descriptions are nice (and abundant), actual $'s in total are non-existent (that I have found). I assumed that this bill would reduce the deficit vs pre-fiscal cliff revenue/spending.

But on CBS This Morning they reported this bill would increase our deficit by $330 billion .

Found this on Reuter's this morning. "By going over the fiscal cliff, the CBO had previously forecast that the higher taxes and lower spending would slash the fiscal 2013 U.S. budget deficit by more than half, to $641 billion from $1.1 trillion the prior year.

But in its analysis of the Senate-passed plan, the CBO said fiscal 2013 revenues would be $280 billion lower and spending $50 billion higher, resulting in a $330 billion deficit increase, for a total deficit of around $971 billion."

So it appears yesterday's bill reduces our deficit from $1.1T to $971B, or a net reduction of $129B from where we were on 12/31/12. It's going to take a lot more than that, but at least it appears we're heading in the right direction

 

[audreyh1]

As usual I am having a devil of a time finding the actual $ impact of the bill. While the bullet point descriptions are nice (and abundant), actual $'s in total are non-existent (that I have found). I assumed that this bill would reduce the deficit vs pre-fiscal cliff revenue/spending.

But on CBS This Morning they reported this bill would increase our deficit by $330 billion .

Found this on Reuter's this morning. "By going over the fiscal cliff, the CBO had previously forecast that the higher taxes and lower spending would slash the fiscal 2013 U.S. budget deficit by more than half, to $641 billion from $1.1 trillion the prior year.

But in its analysis of the Senate-passed plan, the CBO said fiscal 2013 revenues would be $280 billion lower and spending $50 billion higher, resulting in a $330 billion deficit increase, for a total deficit of around $971 billion."

So it appears yesterday's bill reduces our deficit from $1.1T to $971B, or a net reduction of $129B from where we were on 12/31/12. It's going to take a lot more than that, but at least it appears we're heading in the right direction

This all depends on what you compare it to. If you compare it to letting the Bush tax cuts expire, which would have brought down the deficit considerably, then there is a big deficit increase. If you compare it to extending where we were last year or some other plans on the table, it will be a deficit reduction. People chose all sorts of points from which to do a comparison so it's almost pointless to listen to all the screaming numbers unless you are willing to drill down through ALL of the assumptions. My brain hurts enough as it is......

 

[MichaelB]

As usual I am having a devil of a time finding the actual $ impact of the bill. While the bullet point descriptions are nice (and abundant), actual $'s in total are non-existent (that I have found). I assumed that this bill would reduce the deficit vs pre-fiscal cliff revenue/spending.

But on CBS This Morning they reported this bill would increase our deficit by $330 billion .

Found this on Reuter's this morning. "By going over the fiscal cliff, the CBO had previously forecast that the higher taxes and lower spending would slash the fiscal 2013 U.S. budget deficit by more than half, to $641 billion from $1.1 trillion the prior year.

But in its analysis of the Senate-passed plan, the CBO said fiscal 2013 revenues would be $280 billion lower and spending $50 billion higher, resulting in a $330 billion deficit increase, for a total deficit of around $971 billion."

So it appears yesterday's bill reduces our deficit from $1.1T to $971B, or a net reduction of $129B from where we were on 12/31/12. It's going to take a lot more than that, but at least it appears we're heading in the right direction

Heres the CBO scoring http://www.cbo.gov/sites/default/files/cbofiles/attachments/American Taxpayer Relief Act.pdf

 

[Midpack]

This all depends on what you compare it to. If you compare it to letting the Bush tax cuts expire, which would have brought down the deficit considerably, then there is a big deficit increase. If you compare it to extending where we were last year or some other plans on the table, it will be a deficit reduction. People chose all sorts of points from which to do a comparison so it's almost pointless to listen to all the screaming numbers unless you are willing to drill down through ALL of the assumptions. My brain hurts enough as it is......

I understand. Unfortunately, CBS didn't give any basis for comparison AND I couldn't understand how raising rates on "the 1%" and letting payroll taxes with no change in spending could increase the deficit. So I had to take a look-see. It would be nice if "news" answered questions, vs generating more for "viewers/readers" to answer for themselves.

I assume it was obvious to everyone who draws breath that anything they did would reduce the deficit less than letting the fiscal cliff provisions take place. After what CBS reported this AM, I'd be willing to bet there will be thousands if not millions this morning who believe the new bill actually increased deficits vs where we were 12/31. All unnecessary water cooler debates, and it wouldn't surprise me if many talking heads get it wrong today as well.

What they did is a step in the right direction IMO and I'm glad they actually finally did something (and some permanent resolutions), but they need to address spending and tax reform (loopholes/deductions) next.

 

[audreyh1]

I understand. Unfortunately, CBS didn't give any basis for comparison AND I couldn't understand how raising rates on "the 1%" and letting payroll taxes with no change in spending could increase the deficit. So I had to take a look-see. It would be nice if "news" answered questions, vs generating more for "viewers/readers" to answer for themselves.

I assume it was obvious to everyone who draws breath that anything they did would reduce the deficit less than letting the fiscal cliff provisions take place. After what CBS reported this AM, I'd be willing to bet there will be thousands if not millions this morning who believe the new bill actually increased deficits vs where we were 12/31. All unnecessary water cooler debates, and it wouldn't surprise me if many talking heads get it wrong today as well.

What they did is a step in the right direction IMO and I'm glad they actually finally did something (and some permanent resolutions), but they need to address spending and tax reform (loopholes/deductions) next.

Yes, it's really bad. Ultimately it's "spin" and anyone can say anything they darn well please. I have read so many ridiculous assertions on the topic from "news" programs that I gave up long ago. They just pick the most sensational spin and go with that - no qualification, no clarification, no outlining different perspectives. Nothing more to it really - uber superficial coverage. Nonesensical talking heads rule the airways and the sponsors are happy to pay for the ads.

 

[MichaelB]

The tax discussion is interesting and useful...

 

[REWahoo]

The tax discussion is interesting and useful...

...but the political comments are arousing the interest of a certain porcine celebrity?

 

[MichaelB]

...but the political comments are arousing the interest of a certain porcine celebrity?

You mean the Porcine Cliff?

 

[REWahoo]

You mean the Porcine Cliff?

+1

Minecraft How to Fly A Pig Off A Cliff - YouTube

 

[easysurfer]

This market bump from the cliff thingy agreement made it a perfect time for me to get my asset allocation re-balancing out of the way for 2013

 

[audreyh1]

What they did is a step in the right direction IMO and I'm glad they actually finally did something (and some permanent resolutions), but they need to address spending and tax reform (loopholes/deductions) next.

BTW - I read somewhere that extending the AMT patch would add $4.3 trillion to the deficit. Now, I don't know over what time period, etc. I think I saw a $1.9 trillion number somewhere else. But whatever it is, it's BIG and a major reason Congress has been unwilling to make it permanent until now. But it's a fantasy - no one is going to let people in tax brackets as low as $33K/$45K fall into the AMT trap. So ever seriously counting it as future revenue was a big lie. Just one example of all the smoke and mirrors going on.

One advantage of making things permanent (a few deductions/credits are still temporary) is that you have a less malleable basis for comparison going forward.

 

[Dawg52]

I do think that eventually Medicare and SS will be considerably weakened. If I were in my 60s now I might be strongly tempted to grab the SS cash while it is available.

They are not going to try clawbacks.

Ha

Agree. Too bad I'm not of SS age.

 

[Midpack]

I deleted my OB post (it was out of line on second read), fair enough...

 

[MichaelB]

One advantage of making things permanent (a few deductions/credits are still temporary) is that you have a less malleable basis for comparison going forward.

That's a good point. It also makes it easier to do personal tax planning, and hopefully the tax SW can get released earlier.

 

[audreyh1]

That's a good point. It also makes it easier to do personal tax planning, and hopefully the tax SW can get released earlier.

Yes, it sure does!

 

[mystang52]

I'm at work so could only skim the details of this supposed resolution. But from what I can tell both parties should be ashamed of themselves, and have shown a lack of integrity. Neither side wants to tackle the true thorny issues to get our deficit down (i.e., and not saddle our children and grandchildren with serious financial debt).
They are all too busy with finger-pointing and pushing their own political agendae, with no regard for the economic impact. I definitely have a political leaning, which I am not going to mention. In this case, I strongly believe they are all guilty and delaying this another 2 months only means....that in 2 months they will delay it again, and again, and again......

 

[ripper1]

A nice summary of the legislation here Financial Planning Implications of HR8 - the Taxpayer Relief Act of 2012 - kitces.com | Nerd's Eye View

So I take it that people in the 10 to 15% bracket will still pay 0 on capital gains and dividends.

 

[Midpack]

I'm at work so could only skim the details of this supposed resolution. But from what I can tell both parties should be ashamed of themselves, and have shown a lack of integrity. Neither side wants to tackle the true thorny issues to get our deficit down (i.e., and not saddle our children and grandchildren with serious financial debt).
They are all too busy with finger-pointing and pushing their own political agendae, with no regard for the economic impact. I definitely have a political leaning, which I am not going to mention. In this case, I strongly believe they are all guilty and delaying this another 2 months only means....that in 2 months they will delay it again, and again, and again......

I'll risk being naive but hopeful. Republicans will demand spending cuts as a condition for extending the debt ceiling. "Now the focus turns to spending" and overhauling the tax code, Boehner said in a written statement after the vote.

 

[audreyh1]

So I take it that people in the 10 to 15% bracket will still pay 0 on capital gains and dividends.

That's my take.

 

[FIREd]

I am pretty happy with the outcome. A few months ago I was expecting some pretty large tax increases at the federal and state level. After looking at the details of this bill and prop 30 in California, it now looks like the additional tax bite will be pretty benign for us. With DW expecting to retire in 2014, 2013 will be our last year with a 6-figure income and we intend to make the most of it savings-wise and low taxes will help. After that we should fall into the 15% tax bracket and enjoy the 0% tax on LTCG and dividends that y'all are talking about.