Fiscal cliff deal passed & Farm Bill extended

January 2, 2013 at 1:06 pm 2 comments

Happy new year everyone! While we were away, Congress had much to do regarding both the fiscal cliff and the farm bill. Finally, there is some news on both fronts.

Fiscal Cliff

Yesterday, a fiscal cliff deal was passed, which will raise income tax rates for couples earning above $450,000 (to 39.6 percent), increase capital gains and dividend taxes from 15 percent to 20 percent, and increase estate taxes from 35 to 40 percent. For higher-earning households, there will be additional incremental tax increases. In regard to “sequestration,” or the $109 billion in spending cuts that would have taken place on Jan 1, the fiscal cliff deal defers those cuts by two months. Although it did not include President Obama’s promise to increase taxes on earners above $250,000, and although it did not resolve the issue of spending cuts, it does represent the biggest changes in tax rates in decades.

The Washington Post does a good summary of the impact this deal will have on small businesses. For those few small businesses that report pass-through income of over $450,000– a very small slice of small businesses– their taxes will go up. However, the vast majority of small businesses do not report that much income. Only 1.4 percent of small businesses had income over $250,000, so the percentage with more than that would be even less. Other tax deductions and credits that do help small businesses were extended, such as the Research & Development credit, the Work Opportunity Tax Credit (WOTC) for hiring underemployed groups like youth and veterans, tax breaks for renewable energy, and tax breaks for purchasing software and equipment. On the other hand, payroll taxes will increase back up to 6.2 percent (from 4.2 percent) for workers, which some have warned will impact consumer demand. The delay of sequestration also continues the uncertainty that many businesses that contract with government agencies have faced recently.

Farm Bill

After a few months of no new farm bill, and much discussion about the impacts of reverting to the laws set in the 1930s and 1940s, Congress extended the 2008 farm bill for another nine months. Both the Senate and the House had come up with reforms for our nation’s agriculture policy– none of these will be acted upon until the extension expires in September. Many advocates who have been lobbying for a better farm bill are expressing their disappointment at Congress’s inability to take action. Food stamp funding was one of the major causes of the stalemate. This will be taken up again in the fall. For now, we’ll at least avoid $8 per gallon milk prices.

In the end, Congress did act to avert the fiscal cliff and raise taxes on the wealthiest Americans. However, the big questions about spending cuts and the farm bill remain unanswered. Instead of figuring out a solution, Congress has kicked the can down the road. Both of these stories will continue to unfold in 2013, and both will have an impact on our economy, our food, and our safety net programs. In a time that is already marked by uncertainty for many families that continue to struggle with significant economic challenges, Congress should be able to work together to lay the foundation for our future growth and recovery. We’ll keep you posted.

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