Today Senate Minority Leader Mitch McConnell (R-Kentucky) announced on the floor that Republicans and Democrats are “very very close to an agreement” over the looming “fiscal cliff” that begins at midnight.
Senator McConnell said that they have reached an agreement on all of the tax related issues. However, the sequestration cuts which represent over $100 billion in across the board cuts, divided evenly between defense (Pentagon) related and entitlement cuts, are still being worked out and have not been finalized.
Earlier today in Washington D.C. President Obama spoke optimistically about the chances for getting a fiscal deal worked out in the near future.
“There are still issues left to resolve, but we are hopeful Congress can get it done,” Obama said.
Both parties in the senate have worked out a fiscal agreement over raising income tax rates for individuals making more than $400,000 a year and households making more than $450,000 a year, a higher level than the $200,000 and $250,000 threshold that President Obama campaigned with during the presidential campaign.
President Barack Obama is expected to raise $600 billion in revenue over the next 10 years with these new tax hikes.
For individuals and households facing higher tax rates at the $400,000 and $450,000 levels, it amounts to returning to a Clinton-era tax rate of 39.6 percent versus the 35 percent level that all Americans currently pay as a result of Bush-era tax rates.
It also means that the dividends will be taxed at a higher level of 20 percent, up from 15 percent, the current level for upper income Americans reaching the $400,000 and $450,000 threshold. The estate tax will be at the 40 percent level for Americans, only above the $ 5 million level.
Unemployment insurance is extended through 2013. The 2 percent payroll tax cut won’t be extended which means that 125 million households would see their paychecks shrink in 2013. The payroll tax rate will jump higher from 4.2% to 6.2% on the first $113,700 in earnings. A $50,000 wage earner will see their paycheck drop by $1,000 a year after the payroll tax cut expires.
* Update: Leaders from the House of Representatives just announced that they won’t be voting on a budget deal tonight that came out of the Senate today.