NCSL Summary of the American Taxpayer Relief Act

U.S. CapitolJan. 3, 2013

With tax and entitlement reform and spending cuts on the horizon, Congress passed and the president signed the American Taxpayer Relief Act (H.R. 8). The package addresses a portion of the fiscal cliff, but does not include the comprehensive deficit reduction plan that has been discussed by congressional leadership and the administration over the past few years. The act adds almost $4 trillion to the deficit over the next 10 years, according to the Congressional Budget Office.

The uncertainty for states surrounding the fiscal cliff doesn’t appear to have receded with the passage of H.R. 8, particularly in terms of federal spending. This year promises an abundance of contentious fiscal struggles. These include addressing the statutory debt limit, the new sequestration start date in early March, the current continuing resolution that will expire at the end of March, FY 2014 budget negotiations, and several provisions from H.R. 8 that were extended for a year. 

Tax Provisions H.R. 8

  • Makes permanent the Bush-era marginal tax cuts on ordinary incomes, capital gains and dividends income for single taxpayers and joint taxpayers below $400,000 and $450,000, respectively. Tax cuts for those above the threshold will expire.
  • Makes permanent the estate tax exemption of $5.12 million, and increases from 35 percent to 40 percent the current maximum rate.
  • Permanently “patches” the alternative minimum tax by setting exemption amounts of $50,000 and $78,750 for individuals and households, respectively, and adjusting for inflation annually.
  • Extends more than four dozen individual, business and energy tax credits and deductions for the 2012 and 2013 tax years. Included are the optional state and local sales tax deduction, bonus depreciation, qualified zone academy bonds and renewable/alternative energy credits.
  • Extends the expanded child tax credit and income tax credit, along with the college tuition credit for five years.
  • Reinstates Clinton era limits on itemized reductions and the value of personal exemptions for upper bracket taxpayers.

Spending Provisions in H.R. 8

  • Sequestration that was set to begin on Jan. 2, 2013, will instead be delayed until March 1, 2013. The $24 billion in offsets agreed to for this postponement will be split in half between revenue increases and spending cuts. The spending reductions will come from reducing the discretionary spending caps for FY 2013 and FY 2014 originally instituted in the Budget Control Act.  In each year, the cuts will be split between security and non-security spending. The revenue offset will come from the option of converting traditional retirement accounts into Roth IRAs.
  • Extends federal emergency unemployment benefits for laid-off workers until Dec. 31, 2013. Maintains the maximum 73 weeks of combined state and federal benefits.
  • Extends the farm bill until Dec. 31, 2013.

Health Provisions in H.R. 8

  • Extends Medicare reimbursement rate for physicians until Dec. 31, 2013.
  • Extends the Qualified Individual (QI) and Transitional Medical Assistance programs through Dec. 31, 2013.
  • Reduces Medicaid Disproportionate Share Hospital (DSH) allotments by $4.2 billion over ten years by rebasing future allotments.
  • Repeals the CLASS long-term care program enacted as part of federal health care reform.