Capitol to Capitol
An Information Service of NCSL's Standing Committees

Volume 20  Issue 1 - January 2, 2013

WE HAVE A DEAL

Today the president is expected to sign the American Taxpayer Relief Act that would avert some of the components in the fiscal cliff. The Senate passed H.R. 8 early Tuesday morning, 89-8, with the House following suit at night with a vote of 257-167. According to the Congressional Budget Office (CBO), the measure would add almost $4 trillion to the deficit over the next 10 years. Budgetary analyses on H.R. 8 from CBO and the Joint Committee on Taxation are available here: http://www.cbo.gov/sites/default/files/cbofiles/attachments/American%20Taxpayer%20Relief%20Act.pdf; https://www.jct.gov/publications.html?func=startdown&id=4497.
 
On the revenue side, the agreement would make permanent the Bush era cuts on ordinary income, capital gains and dividend income for all taxpayers and households with annual incomes below $400,000 and $450,000, respectively. Rate increases would apply to those exceeding the threshold. The measure permanently extends the estate tax, which exempts estates up to $5 million, and slightly increases its maximum rate to 40 percent. H.R. 8 also extends the alternative minimum tax “patch” by adjusting yearly for inflation. An array of tax extenders, including optional state and local sales tax deductibility, would be retroactively renewed for FY 2012 and 2013. H.R. 8 also extends the expanded child tax credit and income tax credit, along with the college tuition credit for five years. The one revenue piece that would not be extended is the 2 percent payroll tax reduction for employees; it would revert back to 6.2 percent.
 
As for spending, sequestration would be pushed back until early March, with the delay offset by $24 billion in spending cuts along with the revenue increases. The decrease in spending will come from reductions in the discretionary spending caps for FY 2013 and 2014 originally instituted in the Budget Control Act. Both the federal emergency unemployment compensation benefits and Medicare reimbursement rates for physicians would be extended until the end of 2013. The agreement also would extend the current farm bill for another year, thus averting another likely economic and programmatic crisis. Once enacted, H.R. 8 sets the stage for several more ‘cliffs’ in the year ahead (see story below). Additional information is available at http://www.ncsl.org/issues-research/budget/federal-deficit-reduction-overview.aspx. NCSL staff contacts: Michael Bird, Jeff Hurley 


THE CLIFFS AHEAD

States face an expanding world of uncertainty with the many issues left unresolved in “holiday” negotiations; the quantity is ominous. Sequestration gets a two-month reprieve, but roars back on March 1. The domestic and defense discretionary spending caps in the Budget Control Act, whittled down by $12 billion over two years in H.R. 8, appear primed for further “trimming.” With the federal government now using its toolbox to tip toe around the edge of its debt ceiling, prospects are high for another showdown with accompanying credit rating downgrades (possibly trickling down to states and localities). Definitive FY 2013 appropriations remain unresolved, although are continued at FY 2012 levels plus 0.612 percent through March 27. It’s anyone’s guess what happens after that. Also coming to a political theatre near you will be the president’s FY 2014 proposed budget and the already-rumbled-about House and Senate FY 2014 budget resolutions. Then there’s federal tax, tax expenditure and entitlement reform, the first of which is partially resolved with H.R. 8. All have potential major implications for states and will appear soon in “grand bargain” discussions. The next 58 days are sure to test the structure, funding and mettle of federalism, fiscal partnerships and state-federal programs. NCSL staff contacts: Michael Bird, Jeff Hurley


REAL OR SOMEWHAT REAL ID

On Dec. 20, the U.S. Department of Homeland Security (DHS) announced it would temporarily defer (from Jan. 15, 2013), state compliance with REAL ID drivers’ license standards for a minimum of six months for 43 states, commonwealths, territories and the District of Columbia (of the 56 licensing jurisdictions). DHS also announced it would develop a schedule for phased-in enforcement of REAL ID standards by this fall. DHS identified 13 states that have met REAL ID standards, 28 that are non-compliant but have contacted the agency regarding their efforts toward implementation, and another 15 that are non-compliant but have not spelled out their efforts so far. Additional information is available at www.ncsl.org/realid. NCSL staff contacts: Molly Ramsdell, Ben Husch