Senate compromise to put off the ‘fiscal cliff’ to continue Extended Unemployment benefits, raises taxes on working people
Many tax cuts for wealthy also kept
San José, CA – Early New Year’s Day, the U.S. Senate voted 89-8 to pass a compromise bill to put off the so-called ‘fiscal cliff.’ The bill now goes to the House of Representatives, where Republicans are likely to try to get even more tax breaks for the rich.
One of the few good parts to the bill is that it will continue the federal unemployment insurance for the long-term jobless for another year. There are about 2 million workers collecting benefits under the Emergency Unemployment Compensation (EUC) program. All of them would be immediately cut off this week if a bill extending the benefits is not signed into law.
Other benefits of the compromise for poor and working people are an extension of the Earned Income Tax Credit (EITC), a child tax credit and credits for college tuition. These credits were expanded or started in 2009 in response to the economic crisis and will continue for five years.
On the other hand, working people face an immediate tax hike because the payroll tax cut will expire. Most workers getting a paycheck will see their FICA payroll taxes (which go to pay for Social Security) rise by 2%, from 4.2% to 6.2%. This will affect 160 million working people, raising their taxes by about $125 billion in the coming year. This tax increase will have less effect on the rich, as the FICA is only collected from paychecks and not from investment income, and only on the first $113,700 earned.
The compromise also locks in the Bush-era income tax cuts for everyone earning less than $400,000 ($450,000 for a household). The Bush cut in taxes on interest, dividends and capital gains will also continue for these individuals and households. There is a permanent ‘fix’ for the Alternative Minimum Tax, which mainly benefits households earning $200,000 to $500,000 a year. A cut in Medicare reimbursement rates for doctors is delayed a year. The lower limit on taxing estates goes from $1 million before the Bush tax cuts to $5 million under the compromise. A number of business tax credits were also extended.
In addition, the compromise puts off the automatic, across the board spending cuts designed to reduce the federal government’s budget deficit by two months. However, the compromise does nothing about raising the federal government’s debt limit, which will force massive cuts in spending in about two months if nothing is done.