Early in the morning of January 1, 2013, after the nation had technically already taken the leap off the fiscal cliff, the U.S. Senate voted 89 to 8 to pass the American Tax Relief Act of 2012. The bill then made its way to the House of Representatives, where members passed the measure 257-167 late Tuesday night. The highlights of the bill are:
- Permanent extension of current individual tax rates for incomes up to $400,000 for singles, $450,000 for married couples.
- Permanent 15% top capital gains and dividends rates for taxpayers with incomes up to $400,000 for single filers and $450,000 for married filers. Capital gains and dividends for filers with incomes above that threshold will be subject to a permanent 20% rate.
- Current estate tax policy regarding portability (ability of married couples to assume the other’s portion of the exemption) and unification of gift and estate tax provisions are made permanent. The top marginal estate tax rate is set permanently at 40% with a $5 million exemption indexed for inflation.
- The Alternative Minimum Tax (AMT) if permanently indexed for inflation.
- The “Temporary Payroll Tax Cut” is allowed to expire.
- 50% Bonus Depreciation is extended for one year.
- Current extended weeks unemployment insurance is extended for one year.
The president has said he will sign this bill.
The increase in the individual tax rates will impact many in the electrical industry who operate as pass-through entities. In fact, according to NAED’s Vice President of Government Affairs Ed Orlet, 60% of NAED’s members operate as such.
The estate tax has also been top-of-mind for many family-owned distributorships. With this bill, the estate tax rose from a top marginal rate of 35% to 40%, but maintained the exemption of the first $5 million of an estate. The bill makes the estate tax rate permanent.
The automatic spending cuts that were set to begin on January 1, 2013, have been deferred for two months, at which time there will likely be a rancorous debate as Congress tackles a plan to reduce spending. Orlet said that LIFO repeal will likely also be discussed at that time.
“We encourage you to reach out to your elected officials,” Orlet said. “You are important to them. A recent report by the Congressional Management Foundation stated that ‘constituents who make the effort to personally communicate with their Senators and Representatives are more influential than lobbyists.'”
Orlet and NAED have put together a “Blueprint for Economic Growth,” which serves as the association’s agenda outlining the tax and regulatory issues facing the industry.
“Send the blueprint to your co-workers and contact NAED for ways we can help you with these and any other advocacy efforts,” Orlet said.
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