Taxpayers and investors won’t see immediate effects of the changes, which would accumulate over a matter of months. Congress could reverse them by acting retroactively early in 2013. There are signs they may do just that.
Earlier today, Senate Minority Leader Mitch McConnell said lawmakers in Congress were “very, very close” to a deal to avert the budget changes, known as the fiscal cliff. The Kentucky Republican called on lawmakers to “pass the tax-relief portion” of a budget agreement being negotiated that would continue lower tax rates for all but the highest earners.
The only House votes scheduled for today are on non-budget items, according to the chamber’s schedule. House Republicans plan a private conference meeting at 5 p.m. Washington time, and Senate Republicans will meet at 4:30 p.m.
President Barack Obama said before McConnell spoke that a deal to avert tax increases and spending cuts starting tomorrow is “within sight” though it hasn’t been completed.
“It appears that an agreement to prevent this New Year’s tax hike is within sight, but it’s not done,” Obama told a group of what the White House described as middle-class taxpayers. He urged people to “keep the pressure on over the next 12 hours or so; let’s get this thing done.”
FISCAL CLIFF
Lawmakers are seeking to avert tax increases and spending cuts that make up the so-called fiscal cliff. Even if a deal is reached and can get through both chambers of Congress in the coming days, it would be more limited than Obama and leaders of both parties sought. It also would set up another fight early in 2013 over the budget and the federal debt limit.
The president said the main sticking point was how to avoid the automatic federal spending cuts set to begin tomorrow. Those “may not always be the smartest cuts” and would affect defense as well as programs like Head Start, he said.
The Standard & Poor’s 500 Index rallied 1.7 percent to 1,426.20 at 4 p.m. in New York. The 10-year Treasury yield increased six basis points, or 0.06 percentage point, to 1.76 percent at 2 p.m. in New York, according to Bloomberg Bond Trader prices.
Under a proposed deal, income tax cuts would be extended for annual income up to $450,000, said an official who spoke on condition of anonymity, with rates rising to 39.6 percent on income above that. Expanded unemployment insurance would be continued through 2013.
NO REID SIGN OFF
Senate Majority Leader Harry Reid, who controls the floor schedule, hasn’t signed off on any potential deal, according to a Democratic aide. No deal could reach the floor without Reid’s signoff.
Some Senate Democrats expressed resistance toward an income threshold for increased tax rates that would be higher than the $250,000 they sought.
Senator Tom Harkin, an Iowa Democrat, said on the Senate floor that he doesn’t support a $450,000 income threshold, signaling that any deal reached by Vice President Joe Biden and McConnell could lose the votes of some Democrats.
“This is one Democrat that doesn’t agree with that -- at all,” Harkin said on the Senate floor. “We’re going to lock in forever the idea that $450,000 a year is middle class in America?”
'EXTENDED DEBATE'
Harkin didn’t answer directly when asked later whether he might use Senate rules to block a deal he didn’t agree with, saying only that there could be “extended debate.”
Capital gains and dividend rates would rise to 23.8 percent for top earners, including taxes as part of the 2010 health-care law, according to the official.
Estate tax rates would rise to 40 percent on amounts above $5 million per person. Extensions of business tax breaks would continue through the end of 2013. The measure would permanently prevent an expansion of the alternative minimum tax.
The Senate Finance Committee in August approved extending miscellaneous tax breaks through 2013, including benefits for wind energy, corporate research and multinationals’ overseas finance operations.
Bloomberg
