The American Taxpayer Relief Act (H.R. 8) will temporarily avert and delay various elements of the “fiscal cliff.” However, counties will continue to be at risk from the unresolved components of the fiscal cliff that could adversely impact their budgets and the millions of people and local communities they serve.
The measure that permanently extends the Bush-era tax cuts and delays about $110 billion in across-the-board spending cuts, had bipartisan support with 85 Republicans backing the bill (with 151 opposed) and 172 Democrats supporting it (with 16 opposed).
Higher taxes on individuals earning $400,000 and on families making $450,000 or more. Under that threshold, the (George W.) Bush-era tax cuts will be permanent for all but the wealthiest households. The $450,000 threshold for families is a significant increase from Democrats’ initial proposal to raise taxes on Americans making $250,000 or more, but it is lower than Republicans’ earlier proposal to raise taxes on households making $1 million or more.
Higher tax rates on capital gains and dividends for wealthier households. Taxes on capital gains and dividends will be held at their current levels of 15 percent for individuals making less than $400,000 and households with income of less than $450,000. They will rise to 20 percent for individual taxpayers and for households above those thresholds.
Deduction of state and local sales taxes extended. At the end of 2011, the ability to deduct state and local sales taxes in lieu of state income taxes expired. The deduction for state and local sales taxes is one of the so-called tax extenders that Congress must revisit every so often and is a provision that is mostly pertinent to residents in states that levy no individual income tax. The cliff deal revives the provision, extending it for two years until the end of 2013.
Personal exemptions phased out for individuals making over $250,000. Personal exemptions will be phased out and itemized deductions will be limited for taxpayers making over $250,000 and families earning more than $300,000.
Of interest to counties, the limitation on itemized deductions does not apply to tax-exempt municipal bond interest. Counties, however, should remain vigilant on this issue as proposals that could impact the tax-exempt status of municipal bonds could arise when the debate to reform the U.S. tax code begins in earnest.
• A 40 percent estate tax. The current estate tax exemption amount, $5 million and indexed for inflation for years after 2011, is permanently extended by the measure. Additionally, the maximum rate will rise to 40 percent from its current 35 percent level. Democrats had earlier sought a higher increase to 45 percent and a lower exemption of $3.5 million.
• Permanent fix to the Alternative Minimum Tax. The alternative minimum tax was levied to ensure the wealthiest Americans paid a fair share of taxes. It was not indexed for inflation but is usually “patched” annually to prevent an increasingly large swath of middle-class Americans from being caught in its net. As part of the fiscal deal, the AMT will be permanently indexed to inflation.
• Tax breaks for working families. The deal includes five-year extensions of the American Opportunity Tax Credit, which can be claimed for college-related expenses, the Child Tax Credit, and the Earned Income Tax Credit, which is a refundable income-tax credit for low- to-moderate-income working Americans.
• Business tax breaks. The Senate Finance Committee passed a package in August that tackled a variety of routinely expiring tax provisions known as extenders. These popular tax provisions include breaks for research and development. That package passed as part of the broader cliff deal and includes the extension of a “new markets tax credit” program which is provided to businesses that make certain investments in community development entities, and a maximum annual amount of $3.5 billion in qualified investments for 2012 and 2013. The measure also extends for one year through end of 2014, the temporary minimum low-income housing tax credit rate of 9 percent for non-federally subsidized new buildings.
• Work Opportunity Tax Credit Extended. The measure extends the Work Opportunity Tax Credit for qualified wages paid to members of targeted groups, as well as an employer wage credit for activated military reservists.
• Automatic spending cuts delayed for two months. The “sequester,” which would impose steep, across-the-board cuts to domestic and defense programs, will be delayed for two months.
• As part of the compromise to delay sequestration, the legislation reduces to $85 billion the required sequester of discretionary and mandatory spending for FY13. This would be offset by decreasing the current statutory caps on discretionary spending set for FY13 and FY14 by a total of $12 billion ($4 billion from FY13 and $8 billion from FY14, split evenly each year between security and non-security spending), and by raising $12.2 billion in revenue over 10 years by making it easier for individuals with certain tax-deferred retirement accounts to transfer those funds to a Roth IRA. This means that future cuts as part of the annual appropriations process can be expected.
• Parity for employer-provided mass transit and parking benefits. The deal includes a provision that restores benefits for one year for transit riders and vanpool users who may now receive up to $240 in benefits monthly from an employer, the same as the parking benefit. The transit benefit had been reduced to $125 in 2012 while the parking benefit remained at the $240 level in 2012.
This change benefits counties that operate transit systems as it is likely to encourage greater transit ridership and also benefits transit users who are likely to see a decrease in their transportation costs.
• One-year Extension of Unemployment Insurance (UI) Benefits. The measure extends for one year, long term federal UI benefits for laid- off workers. The restructured benefit tiers enacted under last February’s benefit extension are maintained, including a reduction in the maximum number of weeks an individual is entitled to receive benefits, as well as job search requirements.
The measure extends the availability of railroad extended unemployment benefits. The measure also extends the current authorization for federal aid to help states carry out re-employment services through FY14.
County health priorities dodge bullet in year-end fiscal cliff showdown
By Paul Beddoe
ASSOCIATE LEGISLATIVE DIRECTOR
“The good news is that NACo’s health priorities came through the ‘fiscal cliff’ fight mostly unhurt,” says DeKalb County, Ga. Commissioner Larry Johnson, adding, “But the bad news is that we came through mostly unhurt.”
Johnson, who chairs NACo’s Health Steering Committee, explained that leaving Medicaid unscathed and postponing automatic “sequestration” cuts to the Prevention and Public Health Fund or behavioral health and substance abuse programs, only makes those programs juicier targets for reductions in future fiscal cliff budget fights over the next three months.
Republican leaders have made it clear they will insist on spending cuts in a deal to avoid the next three “cliffs.” The first and most dangerous crisis could come as early as the middle of February when the Treasury Department may begin to default on national debt payments, unless Congress steps in to raise the debt ceiling. Then there is sequestration, delayed by H.R. 8 for two months, which will kick in March 1, cutting $85 billion in federal spending. On March 27, the current Continuing Resolution (C.R.), which is funding the federal government in lieu of annual appropriations bills for fiscal year 2013, will expire resulting in a potential government shutdown.
Medicaid, one of NACo’s top priorities could be particularly vulnerable because, along with the other two major federal entitlement programs, Medicare and Social Security, it is likely to be subject to proposals for major structural change. In fact, a number of Medicaid reform proposals are floating around on Capitol Hill — many of which have been out there in one form or another for years — including block grants, per capita caps and additional limitations on how states and counties can come up with the non-federal match.
One key risk factor for counties in these proposals is that they are “dialable” meaning that they can be adjusted — “dialed” up or down — to achieve an arbitrary savings or spending target, leaving counties with a larger share of the cost.
The Prevention and Public Health Fund, which was enacted as part of the Affordable Care Act (ACA), is also a target for cuts. The PPHF was originally set at $15 billion over 10 years with outlays starting small at $250 million in 2010 and $1 billion this year, and ramping up to $2 billion per year. Criticized as the HHS secretary’s “slush fund” by GOP legislators, the fund was cut by $6 billion to pay for the last Medicare “doc fix” in February 2012.
Given that the president had proposed and that he and Senate Democrats actually accepted cuts to the PPHF, public health advocates are not confident that it will not be cut again — or even eliminated — in the next weeks and months of negotiations.
Deeply flawed Farm Bill extension passes: NACo priorities left unfunded
By Erik Johnston
ASSOCIATE LEGISLATIVE DIRECTOR
The threat of a spike in milk prices on Jan. 1 led fiscal cliff negotiators to finally pay attention to the Farm Bill and the so-called “dairy cliff.”
House and Senate Agriculture Committee leaders put forward a bipartisan 11th-hour extension that would have significantly restructured dairy policies and continued 37 programs from the 2008 Farm Bill, including important programs to counties in the rural development and renewable energy titles that have no funding baseline.
These programs would have been extended by modest cuts to the direct payment subsidies for individual farmers. Nonetheless, Senate Minority Leader Mitch McConnell (R-Ky.) led an effort to reject the bipartisan package and replace it with a limited nine-month extension in the final fiscal cliff measure that neglects key programs supported by NACo and most other rural interests.
The extension discontinues mandatory funding for the Rural Development Title for nine months, but reauthorizes the majority of rural development programs that will continue to receive discretionary funding through the regular appropriations process. Programs used by counties to fund water-wastewater, housing, broadband, community facility and business projects will continue at their appropriated levels. However, mandatory funding provided in the 2008 farm bill for the Rural Microenterprise Assistance Program (RMAP, at $15 million), Value Added Producer Grant Program (VAPG, at $15 million) and Water/Wastewater Backlog ($120 million) will end under the extension. RMAP is used by counties for micro-lending programs and will effectively end without mandatory funding.
The farm bill’s Renewable Energy Programs, which received $1 billion in mandatory funding in the 2008 farm bill, and have limited appropriations, will be severely hamstrung by the extension. These programs include the Rural Energy for America Program, Bio-refinery Assistance, Repowering Assistance and other bioenergy and bio-product development programs critical to rural counties
The farm bill extension does include a five-year reauthorization of the nutritional education program and a nine-month extension of the Supplemental Nutrition Assistance Program (SNAP) employment and training component. The SNAP entitlement benefits (food stamps) didn’t require an extension because they don’t expire.
Commodities are protected in the extension. The measure extends current commodity terms and conditions for all commodities for the 2013 crop year, including sugar cane, sugar beets and peanuts. It also extends through Dec. 31, 2013 the Dairy Product Price Support Program and the Milk Income Loss Contract Program.
The next steps for the farm bill remain uncertain with the Senate’s moving forward and the House in limbo. Senate Agriculture Committee Chair Debbie Stabenow (D-Mich.) has committed to pushing forward a full five-year reauthorization of the farm bill in the next few months. She will be joined by a new ranking member, Sen. Thad Cochran (R-Miss), who has promised to push for a commodity title that better balances the needs of southern and northern growers.
Action in the House remains unclear as the House Agriculture Committee’s ranking Democrat member Colin Peterson (Minn.) has refused to be a part of a committee markup until House Republican leadership gives him assurance in writing that they will bring any committee-passed bill to the floor for a vote.
For more information, contact: Erik Johnston at 202.942.4230 email@example.com.