Econintersect: Whatever happens in the Senate tonight the cliff will be passed 
as the New Year arrives. The House will not stay open to address whatever the Senate passes tonight, but will reconvene at noon on New Year’s Day. But even then it is not clear when the House might vote. Investment News says it might be Tuesday or Wednesday; Econintersect suggests it might be never, if the House leadership follows a practice exercised over the latest two-year term of not bringing any bill up for a vote that does not have enough Republican votes to assure a majority vote from Republicans only. Under such a constraint the disagreement by as few as 21 Republicans would prevent a vote ever being taken.
Without passage of new legislation these are the changes that would occur for income taxes, according to Investment News:
As of midnight on Jan. 1, the Bush administration tax cuts will expire, raising the top marginal rate to 39.6% from 35%. Capital gains taxes rise to 20% from 15% and dividend rates increase to ordinary-income rates from 15%. In addition, the alternative minimum tax exemption expires, potentially subjecting 30 million more Americans to that levy.
In addition other taxes would increase:
- Estates would be subjected to a 55% tax after the first $1 million per individual.
- The 2% reduction in FICA paid by employees would expire.
- In addition the extended unemployment benefits funded by the federal government would end.
On Monday afternoon GEI News reported on the rumored parameters agreed on by Senate conferees for resolving the tax question were reported:
- Preserve the current tax rates for incomes up to $400,000 for individuals ($450,000 married couples).
- Reduction of deductions for high income individuals.
- Raising the starting tax rate on estates from 35% to 45% while maintaining the $5 million exclusion (which is $10 million for couples with proper estate planning).
- Maintaining federal unemployment compensation.
- Maintaining earned income tax credits for low income families.
- Increasing top capital gains and dividend tax rates from 15% to 20%.
As of this writing there has been no vote in the Senate. Earlier the hang up was reported to be in how to resolve the automatic spending cuts that go into effect unless there is new legislation. As this is written The Washington Post has reported that there has been an agreement in the Senate:
The agreement came together after negotiators cleared two final hurdles involving the estate tax and automatic spending cuts set to hit the Pentagon and other federal agencies later this week. Republicans gave ground on the spending cuts, known as the sequester, by agreeing to a two-month delay paid for in part with fresh tax revenue, a condition they had resisted. White House officials yielded to GOP wishes on how to handle estate taxes, aides said.
As of 10:40pm there is no word on the Senate vote.
Sources:
- Country going over fiscal cliff as House won’t pull all-nighter (Mark Schoeff, Jr., Investment News, 31 December 2012)
- The Cliff Rescue (GEI News, 31 December 2012)
- Obama, Republicans reach deal on fiscal cliff; Senate vote expected tonight (Lori Montgomery, Paul Kane and Jerry Markon, The Washington Post, 31 December 2012)
