Fiscal Cliff Deal, What Does It Mean?

Ok, so Congress was able to pull together a last minute deal to avoid the fiscal cliff and spark a triple digit rally.   Can anyone say “relief rally?”  In case you missed it, here is a quick cheat sheet on the deal:



  • Income taxes:  The Bush-era tax cuts will remain permanently in place for the vast majority of Americans. Those individuals who make more than $400,000 a year—or families makingover $450,000  will see their tax rates increase from 35% to 39.6%.

  • Payroll tax cut: The 2-percentage point cut to the payroll tax expired at the end of 2012 and was not renewed. That means the Social Security payroll tax will increase from about 4.2% to 6.2%. That’s approximately $1,000 more for a typical family earning $50,000 a year.  The deal also restores the Clinton-era limits on personal exemptions and itemized deductions for households earning more than $300,000 and for single taxpayers earning more than $250,000.

  • Capital gains taxes:  The tax, which is paid on the sale of stocks, real estate, dividends, and other capital assets, will increase from 15% to 20% for individuals making more than $400,000 or families making more than $450,000.

  • Tax break extensions: Tax breaks, largely for middle-class and low-income Americans, were extended for five years. That includes the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax credit.

  • Unemployment Benefits – Extended for one year.

  • Estate taxes: Estate taxes will increase from 35% to 40%. The first $5 million is exempted for individual estates. The Dems originally wanted the rate to be 45% and the exemption to be up to $3.5 million.

  • Farm bill extension: The bill, extended for nine months, removes the looming threat of a big rise in the price of milk.

  • Doctor Fix: Medicare The legislation staves off scheduled cuts to doctors’ Medicare payments for a year. Initially there was going to be a 27% cut in reimbursements to doctors treating Medicare patients.

  • Congress’ salaries: Obama had initially lifted the pay freeze, but it will be reinstated.  I’m thinking John Boehner will not be getting one…..

What still has to be done?  The sequester,  or automatic spending cuts—still has not been addressed and has been put off for two months.  Congress still has a load of work to do regarding cuts to defense spending and other government programs.  We also have the $16.4 trillion debt-ceiling, which as of now has not been extended. The new Congress must now come up with a “extraordinary measures” in two months or a face a looming government shutdown.  Should be an interesting start to the year….