Not surprisingly, Congress acted. Also not surprisingly, Congress took forever to act. Tom Brokaw said this Congress goes out as the most inept in the history of the country. Even so, they were able to reach a compromise. So, what was actually accomplished?
Taxes are going up on those making more than $450,000 per year. Middle class folks are shielded from the tax increases that were set to take effect this month. This was the big issue. Many economists warned that allowing these taxes to go up on everyone would send our economy back into another recession. The top tax rate will rise as soon as the bill is signed by President Obama from its current rate of 35% to 39.6%. Those making under $250,000 per year will also see a rise in taxes, though this rise is not a result of the present deal; rather, the rise in taxes in this bracket is because the payroll tax cut is expired. Here is a great chart showing about how much more in taxes you will pay this year.
Many people have been complaining about how much Congress makes and the fact that they give themselves a pay raise whenever they feel like it. Well, they were scheduled to receive a pay raise this year but, under this deal, that pay raise goes away.
The most shocking part to me is that the estate tax is not reverting back to 2001 levels. The estate tax will remain at five million for an individual and ten million for a couple. I discussed this in greater detail here but, generally, what this means is that anyone who dies and has less than five million in assets pays no estate tax. There was much concern that this would revert back to the 2001 levels, which was one million. Additionally, this bill provides for an inflation increase, guaranteeing the couples exemption to raise to 15 million by the end of the decade.
With that, we start the new year off with a compromise. Hopefully the sign of good things to come with the debt ceiling debate now heating up, though, I certainly hope there isn’t this last minute grandstanding once again.