To: AASCU Presidents, Chancellors and Government Relations staff
From: Ed Elmendorf, Senior Vice President of Government Relations and Policy Analysis
Robert Moran, Director of Federal Relations and Policy Analysis
Makese Motley, Assistant Director of Federal Relations and Policy Analysis
Re: Fiscal Cliff
Date: January 2, 2013
Fiscal Cliff
In rare New Year’s Eve and New Year’s Day work sessions, the Senate and House of Representatives, respectively, approved HR 8, the American Taxpayer Relief Act – a bi-partisan agreement to avoid the fiscal cliff created by the 2011 Budget Control Act. President Obama has indicated he will sign the measure. The agreement was a result of negotiations during the final hours between Vice President Joe Biden and Senate Minority Leader Mitch McConnell. The bipartisan agreement addresses a variety of expiring tax provisions, including individual tax rates, and delays sequestration (across the board budget cuts) for an additional two months.
Key provisions of the legislation:
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Makes permanent the current income tax rate levels for taxpayers except for individuals with an income exceeding $400,000 or couples exceeding $450,000, who will be taxed at the pre-2001 rate of 39.6%.
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Makes permanent the refundable child tax credit of $1,000, the marriage penalty relief, the dependent care tax credit, and the capital gains tax rate structure.
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Includes a retroactive, permanent "patch" that would prevent tens of millions of taxpayers from being subject to the alternative minimum tax that expired at the end of 2011.
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Postpones sequestration for two months.
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Extends Emergency Unemployment Insurance benefits for an additional year to individuals who have been unemployed for six months or more. This provision is estimated to prevent two million people from losing UI benefits.
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Provides an additional one-year for the Medicare “doc fix” – prevention of a 27 percent cut to reimbursements for doctors treating Medicare patients.
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Extends the “Farm Bill” through September 30, 2013 while altering the funding for four National Institute of Food and Agriculture (NIFA) programs: the Organic Agricultural Research and Extension Initiative; Specialty Crop Research Initiative; Beginning Farmer and Rancher Development; and Biomass Research and Development, from mandatory funding to discretionary funding subject to the appropriations process.
The agreement also contains several important education provisions that AASCU has supported and continues to support in its Public Policy Agenda:
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Extends for five years the American Opportunity Tax Credit (AOTC) which provides up to $2,500 in tax relief ($1,000 is refundable) for payments toward qualifying tuition and educational expenses.
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Makes permanent section 127 allowing for up to $5,250 in tax-free, employer-provided educational assistance for either undergraduate or graduate education.
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Makes permanent the Student Loan Interest Deduction which provides for a reduction in income through a $2,500 credit from payments toward student loan interest. This credit is phased out for individuals making between $60,000 and $75,000 (couples between $120,000 and $150,000).
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Provides for a two-year extension (one-year retroactive, as the provision expired at the end of 2011) of the research and experimentation tax credit.
While the measure addresses the expiring tax provisions, it has not resolved the issue of federal spending and sequestration. A two-month extension is a welcome reprieve; however, it pushes the problem forward for the 113th Congress to address. The first couple of months of the new Congress will require action on the sequester, the debt-limit – which Timothy Geithner, the Secretary of the Treasury, announced was reached at the end of 2012, and completion of the fiscal year 2013 spending bills. It is likely that all three of these items will be addressed in the same measure.
Should you have any questions, please do not hesitate to contact AASCU staff about these issues. HAPPY NEW YEAR!
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