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Monday, January 28, 2013

An Overview of the Tax Provisions in the American Taxpayer Relief Act of 2012

Margot L. Crandall-Hollick
Analyst in Public Finance

On December 31, 2012, a variety of temporary tax provisions which were part of the “fiscal cliff” expired. Two days later, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) retroactively extended, and in certain cases modified, many of these provisions. The short time period between the expiration of these provisions and the enactment on January 2 of ATRA retroactively meant that from the perspective of all but upper-income taxpayers, income taxes remained unchanged between 2012 and 2013 (i.e., the amount of income tax withheld from their paycheck and the availability of certain tax deductions, credits, and exclusions remained unchanged).

This report provides an overview of the tax provisions (Titles I-IV and Title X of P.L. 112-240) included in the “fiscal cliff deal,” including

  • the permanent extension and modification of the 2001 and 2003 tax cuts, often referred to collectively as the “Bush-era tax cuts”; 
  • the temporary extension of certain tax provisions originally included as part of the American Recovery and Reinvestment Act (ARRA; P.L. 111-5), often referred to as the “2009 tax cuts”; 
  • the permanent extension of the alternative minimum tax (AMT) patch; 
  • the temporary extension of a variety of other temporary expiring provisions for individuals, businesses, and energy often referred to as “tax extenders”; and 
  • the expansion of in-plan conversions of traditional employer-sponsored retirement accounts (like 401(k) plans) to employer-sponsored Roth accounts (like Roth 401(k) plans). 

ATRA did not extend the payroll tax cut. The payroll tax cut—temporarily enacted for 2011 and 2012—reduced Social Security taxes from 6.2% to 4.2% for employees and from 12.4% to 10.4% for the self-employed on the first $110,100 of wages in 2012. In addition, P.L. 112-240 did not change another component of the fiscal cliff, namely new taxes primarily related to Medicare and enacted as part of the Affordable Care Act (ACA; P.L. 111-148, as amended), which went into effect at the beginning of 2013.

The Joint Committee on Taxation (JCT) estimates that the tax provisions of ATRA (Titles I-IV and Title X) would reduce revenues by $3.9 trillion over the 10-year budgetary window from 2013-2022 in comparison to the official current law baseline. (The official current law baseline was an estimate of future revenue if all temporary tax provisions had expired as originally scheduled.) Of this $3.9 trillion, $1.5 trillion (39%) is a result of permanently extending certain income tax provisions of the 2001 and 2003 tax cuts, $369.1 billion (9%) is a result of permanently extending and modifying estate tax provisions, $134.2 billion (3%) is a result of temporarily extending 2009 tax cut provisions, $1.8 trillion (46%) is a result of permanently extending the AMT patch, and $76.3 billion (2%) is a result of temporarily extending certain temporary expiring provisions and “tax extenders.” In contrast, using a current policy baseline which estimates future revenues if all temporary tax provisions (excluding the payroll tax cut) had been extended, the Administration has stated that these tax provisions would raise revenues by $618 billion.

Date of Report: January 10, 2013
Number of Pages: 33
Order Number: R42894
Price: $29.95

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