President Barack Obama signed a tax bill into law Friday that allows tax cuts for all income levels to continue for another two years and extends unemployment benefits for the next 13 months.
"Candidly speaking, there are some elements in this legislation that I don't like. There are some elements that members of my party don't like. There are some elements that Republicans here today don't like", Obama said. "That's the nature of compromise."
The House of Representatives approved the Senate bill late Thursday. The legislation is estimated to cost $858 billion dollars over 10 years and will be paid for by borrowing. The final vote was 277 to 148.
A majority of Democrats and Republicans voted for the Senate bill despite complaints from each party’s political base. The bill was negotiated between President Obama and Senate Republicans.
Voting was delayed until nearly midnight when debate on the bill was abruptly halted by Democratic leaders soon after it began because of a dispute within their caucus about how to proceed. Democrats wanted to be able to voice their objections to the estate tax provision in a separate vote before voting on the tax bill as a whole.
The House had approved a bill earlier in the year that would exempt inheritances up to $3.5 million and tax amounts above that at a 45 percent rate. That provision was not included in the final bill.
Cost estimates of the legislation provided by the Joint Committee on Taxation of the Senate Finance Committee compare the bill’s costs with costs under the tax rates that were in place before the Bush era cuts. Those costs are:
- 10 percent bracket – $89.3 billion
- 25 and 28 percent bracket – $36.7 billion
- 33 and 35 percent tax bracket – $60.8 billion
The estimate of the total cost of this bill also includes the $136.7 billion cost of patching the Alternative Minimum Tax (AMT), which is based on complex assumptions, and which Congress would have passed in any case.
The bill includes a one-year reduction in payroll tax for all employees, changing the Social Security withholding from 6.2 percent to 4.2 percent. The employer's rate of 6.2 percent is unchanged. Self-employed individuals will receive a one-year reduction in payroll self-employment tax from 12.4 percent to 10.4 percent. The temporary reduction in the payroll tax will cost the Treasury $111.7 billion, and extending unemployment compensation will cost $56.5 billion.
Other provisions include two-year extensions of the following tax benefits:
- $1000 child tax credit
- Tax break for commuters who use mass transit
- Deduction for qualified tuition and education-related expenses
- Itemized deduction for state and local sales tax in lieu of state income tax
- $250 deduction for teachers' out-of-pocket expenses for school classroom expenses
- Increased standard deduction for married couples
- Current lower tax rates on dividends and capital gains (no tax for taxpayers below the 25 percent tax bracket, 15 percent for all others)
- Limitation on itemized deductions for high-income taxpayers
The bill now goes to the president for his signature.