By: Gina Luke, assistant director, Governmental Relations Division
After months of political wrangling and with less than 36 hours remaining in the 112th Congress, Congressional leaders sent a bill to President Obama’s desk Jan. 2 that averted the fiscal cliff. The 153-page American Taxpayer Relief Act of 2012 (H.R. 8) passed the U.S. House of Representatives 257-167 and the U.S. Senate 89-8. The bill includes provisions that limit tax increases for most Americans, delay across-the-board spending cuts for government agencies, and extend the Farm Bill for nine months.
Dr. Mark Lutschaunig, director of AVMA’s Governmental Relations Division, applauded the passage of the legislation, but calls for more action from the 113th Congress:
“AVMA congratulates Congress for passing an agreement to address the fiscal crisis. The American Taxpayer Relief Act provides small businesses and most taxpayers with continued relief from higher taxes.
“However, the AVMA is troubled by the inability of Congress to pass a five-year Farm Bill and remains concerned about the failure of Congress to address sequestration adequately. The bill passed Jan. 2 simply delays for two months the implementation of potentially devastating cuts to agricultural and research programs supported by the U.S. Department of Agriculture and the National Institutes of Health that impact both human and animal health and food safety. We urge our representatives to introduce legislation early in the 113th Congress that will address these important issues for the veterinary profession.”
Had Congress failed to reach an agreement on the fiscal cliff before the session ended on Jan. 3, tax rates would have increased for all Americans, and spending on both domestic and defense programs would have suffered debilitating cuts through sequestration. No agency would have been spared from the budget cuts, including agencies such as the Animal and Plant Health Inspection Service (APHIS), the Food Safety and Inspection Service (FSIS), the Food and Drug Administration (FDA) and the National Institutes of Health (NIH). These agencies are still not out of the woods with respect to sequestration, since H.R. 8 simply delays the automatic, across-the-board cuts for two months. Presumably this short respite will give Congress more time to develop a permanent solution that curtails spending and identifies additional revenue.
H.R. 8 also helped to avoid the “dairy cliff” by extending, through the end of fiscal 2013, most of the 2008 Farm Bill provisions, which essentially means that Congress has nine more months to pass a comprehensive Farm Bill. AVMA will focus its efforts in the 113th Congress on retaining several provisions that the association secured in the House and Senate versions of the Farm Bill last Congress. These include the initial authorizations for the Veterinary Services Investment Act and the Foundation for Food and Agriculture Research, extensions for Animal Disease and Health Research and the Food Animal Residue Avoidance Databank, and a “fix” for the Minor Use Animal Drug Program.
H.R. 8 provides most individuals and families with tax benefits.
- Marginal taxes - It indefinitely extends the current marginal tax rates for 98 percent of American families with incomes of up to $450,000 and individuals with incomes of up to $400,000. The rates for incomes above those thresholds will rise to 39.6 percent from 35 percent.
- Estate taxes – Individual estates valued at more than $5 million and joint estates valued at more than $10 million will be taxed at 40 percent, up from 35 percent. Estates valued below $5 million are exempt.
- Dividends and capital gains taxes – The measure permanently extends the tax rates on dividends and capital gains for individual incomes below $400,000 and for joint-filers below $450,000. Rates for the dividends and capital gains taxes rise from 15 percent to 20 percent for incomes above those thresholds.
- Personal Exemption Phaseout - The legislation freezes the Personal Exemption Phaseout at current levels.
- Alternative Minimum Tax (AMT) – H.R. 8 permanently patches the alternative minimum tax to account for inflation. Had Congress not included the patch, the higher AMT would have affected tens of millions of middle income taxpayers.
- Education benefits - Individuals will benefit from the extension of education savings accounts, employer-provided educational assistance and student loan interest deduction.
While long-term unemployment insurance is extended through 2013, H.R. 8 does not extend the 2 percent reduction in worker’s Social Security payroll tax that has been in effect for the past two years.
In addition to the tax benefits for individuals and families, 31 credits and deductions favoring business are extended by H.R. 8.
- Bonus depreciation for property – H.R. 8 includes a 50 percent bonus depreciation for property placed in service before the end of 2013 (and through 2014 for certain transportation property and certain longer-lived items). Businesses may deduct from their taxes 50 percent of the value of that property in addition to amounts that they could otherwise claim under depreciation rules.
- Capital expenses for small businesses - The extension of Section 179 of the tax code aims to help small businesses more quickly recover the cost of certain capital expenses. Small business taxpayers will continue to have the option to deduct from their taxes the cost of purchases, up to a specified limit, in the year that items are acquired, rather than recovering the costs of the items over time through depreciation. When businesses place more than a specified amount of property into service in a year, then the amount that they are permitted to expense is reduced dollar for dollar, but not below zero. The Section 179 increases the expensing limit for 2012 and 2013 to $500,000, with the phase-out beginning when investments exceed $2 million.
Although H.R. 8 has some immediate benefits, it comes at a steep cost. Continuing most of the 2001 and 2003 tax cuts means that the U.S. Treasury will not collect $3.92 trillion over the next 10 years. Nearly $600 billion in revenue will be raised, however, by allowing the tax rates to expire for income levels above $400,000.
Looking Forward to the 113th Congress
While the end of the 112th Congress is a welcome sight for some, the prospects for a “healthier” political climate in the next Congress does not look promising. Just 220 bills became law during the 112th Congress, including H.R. 8, compared to383 in the 111th Congress and 460 in the 110th Congress. The 112th Congress has been the least productive and least collegial in decades.
Much unfinished business will have to start again in the 113th Congress. House and Senate members need to double their efforts to put the nation’s business before partisan bickering and infighting. Let’s hope that cooler heads and bipartisan consensus for the common good prevails.