Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       

Blog Home
   Brian Wesbury
Chief Economist
Click for Bio
Follow Brian on Twitter Follow Brian on LinkedIn View Videos on YouTube
   Bob Stein
Deputy Chief Economist
Click for Bio
Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
  Thoughts on Avoiding the Fiscal Cliff
Posted Under: Government • Spending • Taxes
Over the past few days the House and Senate passed a bill to avoid the so-called "fiscal cliff."  Some key features of the deal include the following:

  • The top tax rate on regular income will go back up to 39.6% from 35%.  In addition, high-earners will again face phase-outs for personal exemptions and itemized deductions, resulting in any even higher effective marginal rate. 
  • Other regular income tax rates, for middle and lower earners, were made permanent. 
  • The top tax rate on capital gains and dividends will rise from 15% to 20% (23.8% including a new tax in the   health reform law).  Without a deal, the top dividend rate would have risen to 39.6%.
  • The top tax rate on estates was increased to 40% from 35%.  Without a deal, the rate would have risen to 55%.  The exemption amount was kept at $5 million and will grow with inflation.  
  • The exemption amounts for the Alternative Minimum Tax were permanently indexed for inflation, so no more need to "patch" the AMT each year. 
  •  Extended unemployment benefits and 50% accelerated depreciation were extended one more year. 
  •  Allow pre-tax 401k (and similar) retirement accounts to be converted to "Roth" accounts.
By far, the biggest problem with the deal is the failure to address our long-term entitlement problems.  The deal postpones the spending sequester negotiated back in August 2011 to March 1.  Meanwhile, largely due to extra unemployment compensation and higher Medicare provider payments, spending will be about $50 billion higher in the current fiscal year.  

Tax rates will be higher in 2013 and beyond, but without any changes to entitlement programs, so the US' fiscal path remains unsustainable.
Posted on Wednesday, January 2, 2013 @ 4:35 PM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2018 All rights reserved.