Congress returned to Capitol Hill earlier this week to begin the six week “lame duck” session which follows Election Day and precedes the start of the new Congress in January. Federal lawmakers face a crowded agenda in this short session which concludes the 112th Congress. Among the most pressing issues that Congress needs to address prior to adjournment are:
- The Bush-era tax cuts from 2001 and 2003 that are set to expire on December 31, 2012;
- the sustainable growth rate “Doc Fix” to help pay Medicare doctors;
- the current alternative minimum tax patch set to expire on December 31, 2012; and
- commencement of the “sequestration” deal that requires $1.1 trillion in spending cuts over the next 10 years ($109 billion in 2013).
Expiration of the Bush-era tax cuts and the start of sequestration will be the primary focus of the lame duck session. The combination of the two has been labeled as the “fiscal cliff” for the potential negative impacts on the economy should they both proceed as scheduled.
A closer look at the Bush tax cuts reveals that income tax cuts were passed in 2001 while tax cuts related to capital gains and dividends were passed in the 2003. Unless Congress acts, federal income tax rates will revert as follows:
Current Bracket New Bracket
The current maximum federal income tax rate on long term capital gains and dividends is 15%. The maximum federal rate on long term capital gains is scheduled to increase to 20% (or 18% on gains from assets acquired after December 31, 2000 and held for over five years). The maximum rate on dividends will jump to 39.6%.
Sequestration, which is the other half of the much-discussed fiscal cliff, mandates deep cuts to both defense and non-defense programs including Medicare reimbursements to providers.
Based upon the election results, the NTRA’s federal lobbying team anticipates that Senate Democrats and the Obama Administration will attempt to reach an agreement with House Republicans to extend several of the key tax provisions and delay some of the automatic sequestration cuts. However, this scenario is contingent upon reaching an agreement with House Republicans to raise taxes. House Speaker Boehner has indicated that House Republicans instead want to extend all of the current tax cuts and hammer out an agreement for tax reform in 2013.