| Date | December 20, 2012 (112th Congress, 2nd Session) |
| Staff Contact | Andy Koenig |
On Thursday, December 20, 2012, the House is scheduled to consider the House Amendment to the Senate Amendment to H.J. Res. 66, the Permanent Tax Relief for Families and Small Businesses Act of 2012. The rule for consideration provides one hour of debate equally divided and controlled by the chair and ranking minority member of the Committee on Ways and Means. The rule for consideration of the Permanent Tax Relief for Families and Small Businesses Act of 2012 would also provide for consideration of H.R. 6684, the Spending Reduction Act of 2012.
The substitute amendment to H.J.Res. 66 would make permanent the following individual income tax rates which are set to increase on January 1, 2013: the 10% rate, the 25% rate; the 28% rate; the 33% rate; and the 35% rate for taxpayers with incomes below $1 million. As such, the substitute amendment would permanently extend all current individual tax rates for incomes up to $1 million and provide a total tax cut of $3.9 trillion over the next 10 years. The amendment would also permanently extend the 15 percent top rate for capital gains and dividends with respect to taxpayers with incomes up to $1 million (indexed for inflation). The proposal would permanently extend other tax cuts including the estate tax at its current level, the $1,000 child tax credit, marriage penalty relief and certain educational tax credits. The bill would also permanently provide higher small business expensing limits and would repeal the personal exemption phase-out and the “Pease” limitations. Finally, the bill would provide a permanent AMT patch which would be adjusted for inflation.
In total, the bill would provide a tax cut of $3.9 trillion over the next 10 years, according to the Joint Committee on Taxation (JCT). The following summary of the bill’s specific provisions is based on information provided by the House Ways and Means Committee and JCT.
Prevention of individual income tax rate increases:The bill would permanently extend through the current individual income tax brackets for every taxpayer earning under $1 million, which are set to expire at the end of calendar year 2012.Under current law, the reduced marginal tax rates for ordinary income enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”)— and subsequently extended through 2012 as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRUIRJCA”)—are scheduled to expire after December 31, 2012.
Under this legislation, the following rate cuts would be made permanent: the 10 percent rate, the 25 percent rate, the 28 percent rate, the 33 percent rate, and with respect to taxpayers with incomes up to $1 million (indexed for inflation), the 35 percent rate. According to the Joint Committee on Taxation (JCT), this provision would provide a tax cut of $875.7 billion over 2013-2022.
Prevention of increases in capital gains and dividends rates: Under current law, the reduced tax rate structure for long-term capital gains and qualified dividends that was originally enacted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) is scheduled to expire after December 31, 2012. This legislation would permanently extend the JGTRRA rate cuts for capital gains and dividends—which are currently taxed at a top rate of 15 percent (with a special zero rate for capital gains and qualified dividends that would otherwise be taxed at 10 percent or 15 percent)—with respect to taxpayers with incomes up to $1 million (indexed for inflation). For taxpayers with incomes above $1 million, capital gains and dividends would be taxed at a top rate of 20 percent. This provision would also ensure that dividends are taxed at the same rates as capital gains on a permanent basis, rather than reverting to the higher rates applicable to ordinary income. According to JCT, this provision would provide a tax cut of $282.5 billion over 2013-2022.
Permanent extension of additional 2001 and 2003 tax relief:Under current law, various other low-tax policies originally enacted as part of EGTRRA and JGTRRA scheduled to expire after December 31, 2012.Under this legislation, these other tax cuts originally enacted in 2001 and 2003 would be made permanent, including:
- Marriage penalty relief. The legislation would permanently extend tax relief provisions that prevent marriage penalties in the tax code. Under current law, the tax code contains various marriage penalties which result in thresholds or amounts for married couples filing joint returns that are less than twice the corresponding thresholds or amounts applicable to single filers. EGTRRA eliminated the marriage penalty with respect to two significant features of the tax code: the standard deduction and the exit point for the 15 percent rate bracket (i.e., the threshold above which the next additional dollar of taxable income is subject to the next highest rate bracket). Under current law, those marriage penalties are scheduled to be reinstated in 2013. Under the proposal, the existing marriage penalty relief would be made permanent. According to JCT, this provision would provide a tax cut of $59.5 billion over 2013-2022.
- $1,000 child credit. This legislation would permanently extend the $1,000 child tax credit for children under the age of 17. Under current law, a child credit in the amount of $1,000 per child under the age of 17 is available, but that amount is scheduled to revert to $500 per child in 2013. Under the proposal, the $1,000 child credit amount would be made permanent. According to JCT, this provision would provide a tax cut of $220.1 billion over 2013-2022.
- Repeal of the Personal Exemption Phase-out (“PEP”) and the Pease Limitation. This legislation would permanently repeal the personal exemption phase-out and the “Pease” limitations. Since 2010, a provision of law known as the Personal Exemption Phase-out (“PEP”), which had previously phased out the value of the personal exemptions of certain taxpayers, has been temporarily repealed. Similarly, since 2010, another provision of law known as the Pease limitation, which had previously reduced the value of itemized deductions of certain taxpayers, has been repealed. When PEP and the Pease limitation were in effect prior to 2010, they each created additional, hidden marginal rate increases that applied to ordinary income, capital gains, and dividends. Under current law, both PEP and the Pease limitation are scheduled to be reinstated in 2013. Under the proposal, the repeal of each of these provisions would be made permanent, preventing the additional, hidden marginal rate increases they create from once again taking effect. According to JCT, this provision would provide a tax cut of $162.7 billion over 2013-2022.
- Estate tax relief. Prior to 2001, the estate tax featured a confiscatory top rate of 55 percent and a low exemption amount of $1 million. Under current law, the estate tax is set to increase to a tax rate of 55 percent and an exemption amount of $1 million. This legislation would permanently extend the current tax rate at 35 percent with an exemption amount of $5 million for the estate tax. Under EGTRRA, the estate tax rate was gradually phased down and the exemption amount was gradually increased over the following decade. Under TRUIRJCA, for 2011 and 2012, the top estate tax rate was set at 35 percent and the exemption amount was set at $5 million (indexed for inflation), but both of those parameters are scheduled to revert to their pre-2001 levels in 2013. Under the proposal, the parameters in effect for 2012 (including the indexing of the exemption amount for inflation) would be made permanent. According to JCT, this provision would provide a tax cut of $388.2 billion over 2013-2022.
- Education-related and other tax benefits. EGTRRA provided various education-related tax benefits – such as an exclusion for certain employer-provided educational assistance and an expansion of the student loan interest deduction – as well as various other tax benefits, such as a non-refundable adoption credit. Under current law, these education-related and other tax benefits originally enacted in 2001 as part of EGTRRA are scheduled to expire after December 31, 2012. Under the proposal, these benefits would be made permanent. According to JCT, these provisions, taken together, would provide a tax cut of $28.8 billion over 2013-2022.
Permanent small business tax relief:Under Sec. 179 of the tax code, small businesses may “expense” (that is, immediately deduct, rather than recover over time through annual depreciation deductions) the cost of certain property in the year in which it is placed in service, up to certain limits. Currently, the amount of qualifying property placed in service that may be expensed is limited to $125,000, with that amount reduced (but not below zero) by the amount by which the cost of such property exceeds $500,000, with both of those amounts adjusted for inflation. For 2012, those inflation-adjusted amounts are $139,000 and $560,000, respectively. However, in 2013, those parameters are scheduled to revert to $25,000 and $200,000, respectively.
Under the proposal, the small business expensing parameters would be permanently set at $250,000 and $800,000, respectively, and adjusted for inflation. According to JCT, this provision would provide a tax cut of $45.7 billion over 2013-2022.
Permanent Alternative Minimum Tax (AMT) “Patch:” Under current law, in addition to the regular tax, an alternative minimum tax (AMT) may be imposed on individuals with an income above an exemption amount, depending on their particular facts and circumstances. Under the law in effect in recent years through 2011, an annual AMT “patch” – which increases the AMT exemption amount and extends a provision permitting certain non-refundable personal credits to be taken against the AMT – has been put in place to hold the number of AMT-affected taxpayers constant at approximately 4 million. For 2011, the most recent year for which an AMT patch was in place, the exemption amount was $48,450 for singles and $74,450 for joint returns. Under current law in effect for 2012 and subsequent years, however, the AMT exemption amount reverts to its pre-2001 level – $33,750 for singles and $45,000 for joint filers – and non-refundable personal credits may no longer be taken against the AMT. Without an AMT patch for 2012, JCT estimates that approximately 31 million taxpayers will be liable for AMT on their 2012 returns (generally due on April 15, 2013), including millions of middle-class taxpayers who will pay the AMT for the first time.
Under the proposal, the AMT patch would be made permanent. For 2012, the AMT exemption amount would be increased to $50,600 for singles and $78,750 for joint returns. For 2013 and subsequent tax years, the exemption amount and various other AMT parameters would be indexed to hold the number of AMT-affected taxpayers constant at approximately 4 million (the historic target used for prior AMT patches). For 2012 and subsequent tax years, non-refundable personal credits would also be allowed against the AMT, consistent with prior AMT patches. According to JCT, this provision – including the interaction effects between the AMT patch and the 2001/2003 tax cuts – would provide a tax cut of $1.9 trillion over 2013-2022.
In total, the bill would provide a tax cut of $3.9 trillion over the next 10 years, according to the Joint Committee on Taxation (JCT).
Tax Relief Contained in H.J.Res. 66 According to JCT
(Courtesy of the House Ways and Means Committee)
Provision | Total budget effects (2013-2022), Per JCT table | Outlay effects (2013-2022) | Tax cut (2013-2022) |
Permanent extension of reduced marginal income tax rates for incomes up to $1M | $912.6 billion | $36.9 billion | $875.7 billion |
Permanent repeal of PEP and Pease limitation | $162.7 billion | N/A | $162.7 billion |
Permanent $1,000 child credit | $354.5 billion | $134.4 billion | $220.1 billion |
Permanent marriage penalty relief | $84.6 billion | $25.1 billion | $59.5 billion |
Permanent extension of other 2001 tax cuts (e.g., education benefits, adoption credit) | $30.8 billion | $2.0 billion | $28.8 billion |
Permanent extension of reduced capital gains/dividends rates (top rate of 15%) for incomes up to $1M | $282.5 billion | N/A | $282.5 billion |
Permanent extension of 2012 estate tax rules ($5 million exemption/35% top rate) | $388.2 billion | N/A | $388.2 billion |
Permanent extension of higher small business expensing limits under Sec. 179 | $45.7 billion | N/A | $45.7 billion |
Permanent AMT patch (including interaction effects between the AMT patch and the 2001/2003 tax cuts) | $1.9 trillion | N/A | $1.9 trillion |
Total | $4.1 trillion | $198.3 billion | $3.9 Trillion |