Assume crash positions, people. We are going over the fiscal cliff.
The Senate is still working on a proposal to deal with the expiring/expired tax provisions that are part of the fiscal cliff.
The House, however, has called it a day. Regardless of what the Senate might do later today, the House will vote on it tomorrow at the earliest.
So technically, we're all part of the Wyle E. Coyote cartoon family, dropping helplessly into a financial canyon.
Cliff jump courtesy surfbunny.tumblr.com..
Realistically speaking, it won't matter that much if the final tax deal is done at 11:59 p.m. tonight or 3 p.m. on Jan. 1 or even 9 a.m. on Jan. 2.
And going over the cliff actually could make getting a deal through the House easier.
Since at the stroke of midnight tonight individual tax rates would go back up to pre-Bush days, lawmakers voting after that would be voting for tax cuts. That technicality could pacify the adamant anti-tax Republican contingent in the House that rebuffed its own speaker's fiscal cliff Plan B proposal.
Retroactive taxes: As for the application of the cliff-imposed taxes, since New Year's Day is a federal holiday nothing will take effect until Wednesday, Jan. 2.
For the record, though, Congress routinely makes the effective date of laws retroactive, so the final 2013 tax rates will cover Jan. 1 to Dec. 31, 2013.
The U.S. stock market is closed for New Year's Day, and foreign markets won't open until late afternoon tomorrow our time, so there won't be immediate massive market panic.
And the Internal Revenue Service has already decided that it was going to start 2013 using the 2012 rates. When the final vote is taken and the income tax rates and brackets are in place, the IRS will send out the new withholding info for employers and payroll companies to put into place.
If the final official approval happens quickly, then most folks shouldn't notice a major change in their checks except, of course, for the Social Security payroll tax withholding rate that
goes from 4.2 percent back to its usual 6.2 percent.
Yep, word is that the payroll tax holiday definitely is not a part of the deal the Senate is hammering out.
Senate cliff provisions: So what is in the tax component of the fiscal cliff deal? The National Journal reports it includes:
- Permanent extension of 2012 income-tax rates for single taxpayers earning less than $400,000 a year and married jointly filing couples making less than $450,000 annually. For those making more than those thresholds, the top tax rate would be 39.6 percent.
- Permanent 15 percent rate on capital gains and dividends for those taxpayers making less than than $400,000 (single) or $450,000 (couples). The tax on these investment earnings for those exceeding the income thresholds would be 20 percent.
- Personal exemption and itemized deduction phaseouts (PEP and Pease in legispeak) for those making more than $250,000 (single), $300,000 (couples).
- Permanent estate-tax exemption at $5 million, but the tax rate would go from 35 percent to 40 percent.
- Permanent alternative minimum tax (AMT) patch.
- The tax extenders approved earlier this year by the Senate Finance Committee; no details on how provisions such as the required minimum distribution (RMD) direct rollover to a charity would apply to eligible individuals who today took their RMD to avoid the penalty.
- Five-year extension of the American Opportunity education tax credit, the $1,000 Child Tax Credit and the Earned Income Tax Credit (EITC).
- For businesses, a one-year extension of 50 percent bonus depreciation.
Also reportedly part of the deal are extended unemployment insurance benefits and the Medicare doc-fix that would maintain physician reimbursement rates.
What isn't in the fiscal cliff deal, at least so far, is how to deal with sequestration, the deep and automatic spending cuts in defense and domestic programs. Although they, too, will go into effect on Jan. 1, there's actually some time to stall or undo them.
And so the wait goes on.
Here's hoping we'll have something other than the end of the brutally partisan 2012 to toast when the ball drops tonight.
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