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How We Averted the Fiscal Cliff: As a CPA, People Might Expect You To Know This Crap

I don't care if you're a Republican or a Democrat; you're an accountant, and the avert-the-fiscal-cliff legislation that the federal government crapped out at the last minute hooks you up. Sure, you're going to pay more in taxes, but Congress was actually able to bang out some long-term solutions to the expiring tax cuts which is going to make your life easier1.

Remind me, what was this "fiscal cliff"?
At the beginning of 2013, taxes were supposed to go way up and government spending was supposed to go way down. (Do not confuse the "fiscal cliff" with the "fiscal cliff cliff." The "fiscal cliff cliff" refers to the dramatic decrease in how much people cared about the "fiscal cliff" immediately following some opaque news that it was "solved.")

What happened?
Since John Boehner2 and President Obama couldn't get it done, the big boys had to come in to fix the problem: Grinnin' Joe Biden and Senator Mitch "No Lips" McConnell3. Due to whatever these two guys did, on January 2, 2013, the President signed the American Taxpayer Relief Act of 20124.

Are we going to take it up the tax hole?
Not nearly as much as we could have. Here are the main provisions:
  • All the tax brackets (adjusted for inflation) and rates are staying the same. There is a new bracket, however, for rich dudes. In 2012, the highest bracket was 35% for anyone making over $388,350 (single or married filing jointly). For 2013, you get hit with 35% for income over $398,350, and 39.6% for income over $400,000 for singles ($450,000 for married couples). That's right. The 35% tax bracket for single filers spans an entire $1,650. There hasn't been a bracket that insignificant since Loyola played Tennessee Tech5.
  • Capital gains rates stayed pretty much the same, too: 15% for almost everybody, but it's 20% for anybody who's up in the highest income tax bracket. Kind of feels like Obama's giving Romney one last "fuck you."
  • Employee-paid FICA (social security) went back up to 6.2%. It's been at 4.2% since the beginning of 2010. You see, a little over two years ago it was made clear that entitlement spending vastly outpaced entitlement revenue. There were two ways to deal with that – either cut entitlement spending or increase entitlement revenue. So on December 17, 2010, the U.S. Government made the obvious choice to cut entitlement revenue. Social security is now simply going back to "underfunded" from "grossly underfunded."
  • The child tax credit was supposed to drop back down to $500 per kid, but they kept it at $1000 per kid. Mormons and Catholics rejoiced6. Nothing starts a baby boom like an extra $500.
  • Qualified dividends will continue to be taxed at capital gains rates. (They were supposed to switch back to the much higher ordinary income tax rates.) If you're like me, the only dividend you received was for $50 when you landed on Chance (not a qualified dividend).
  • The child and dependent care credit will stay unchanged, like your baby's diaper when you leave her at child care. The credit is for up to $3,000 of expenses for one dependent or up to $6,000 for more than one.
  • The estate tax has been increased to 40% (up from 35% in 2012). The estate tax exclusion amount was supposed to drop down to $1 million, but the fiscal cliff deal leaves it at $5 million (indexed for inflation). Rich kids now feel much better about not euthanizing their parents.
  • Congress made all of the aforementioned provisions permanent. They're not permanent permanent. They're permanent like a Gingrich marriage. They've been entered into with no sunset provision, but everybody knows their not going to last forever.
What's the deal with the spending cuts?
Despite the "permanent" fix for the tax situation, the solution for the spending cuts was pretty much the opposite; they were simply delayed for two months. There's a Bob Dylan song that lasts longer than two months. Delaying the cuts for two months can't even be referred to as "kicking the can down the road" unless you kick like a girl.
What else should we know?
I'm not going to lie to you. There is a lot more to it. But, you know, the fiscal cliff cliff.
1 Unless you're in audit, then you're just going to pay more in taxes.
2 I know. It totally looks like it should be pronounced "boner."
3 Fun Fact: Sen. McConnell has never had a stroke despite the fact that he appears to have lost the use of both sides of his face.
4 According to the Constitution, a bill can have the prior year in its name if legislators sign it while still hungover from the previous year.
5 Please note: any sports references in my articles are the result of a half-assed google search.
6 Not together.