Fiscal Cliff Update: Senate Reaches Deal, House Approves

In the wee hours of January 1, 2013, Senate leaders reached agreement on legislation designed to avert the so-called "fiscal cliff." That agreement has now been approved by the House.

For the countries higher earners, it will mean an increase in taxes but for most of America, it will mean just a small increase without the country "jumping off the cliff."

By an 89-9 vote, the Senate passed a package that would put off budget cuts for two months and preserve Bush-era income tax cuts for individuals earning less than $400,000 or couples earning less than $450,000.

However, workers still will see a reduction in take-home pay in 2013, as the payroll-tax rate will return to 6.2-percent.

Some highlights of the so-called McConnell-Biden plan:

• The payroll tax rate, which is used to fund Social Security, will rise to 6.2 percent from 4.2 percent. For a worker making $30,000 annually, that would mean about $50 less monthly in take-home pay.
• Extends tax cuts in the 2009 stimulus act for five years, including a child tax credit, and an expanded earned income credit.
• Federal unemployment insurance would be extended for a year for 2 million people.

The entire Senate bill can be reviewed here.

The New York Times reported that the debt limit was not part of the deal. The country officially hit its debt limit Monday, and the Treasury reportedly is undertaking “extraordinary measures” to put off default.