Big Wins For Millennials In Fiscal Cliff Deal
Young Americans can breathe a sigh of relief this week now that Congress has extended several college affordability measures as part of its fiscal cliff deal.
On Wednesday evening, President Obama signed the American Taxpayer Relief Act of 2012, the bipartisan deal to avert the so-called fiscal cliff. The Senate approved the deal on Monday with an 89-8 margin; the House took up the bill the next day and, despite some suspense leading up to the vote, passed it by a healthy 257-157 margin.
The deal comes after months of frustrating negotiations between the White House and Congressional leaders that turned every news cycle into an economics roller coaster. So often a day would start with optimistic headlines promising that a deal was close, only to be dashed when progress fell apart and we were back to square one.
So what are the benefits for Millennials? As the New York Times noted, they include:
- Extending the American Opportunity Tax Credit through the end of 2017. The credit helps defray undergraduate college education expenses by allowing borrowers to deduct up to $2,500.
- Extending the Tuition and Fees Deduction through this year. Originally set to expire in 2011, this allows taxpayers to claim up to $4,000 in tuition expenses.
- Making some changes to the Coverdell Education Savings Accounts permanent. Families can now contribute $2,000 (up from $500) each year to these tax-free, savings accounts that give parents a way to save for their children’s college and other education expenses.
- Permanently repealing a five-year limit for deducting up to $2,500 via the Student Loan Interest Deduction. This means that students and families can claim student loan interest on their tax forms beyond 60 months.
These represent some important protections for young Americans pursuing higher education as well as for their families.
But what else does the fiscal cliff deal do? Here are some highlights from our colleagues at ThinkProgress:
What’s in the deal?
- The first major tax increase for the wealthy in 20 years. Allowing the expiration of some of the Bush tax cuts amounts to the first major tax increase for the wealthiest Americans since the 1990s.
- The Bush tax cuts expire for just 0.7 percent of taxpayers. The expiration will occur on income in excess of $400,000 (or $450,000 for a couple). This translates into “a little over 1 million Americans” according to the Tax Policy Center. The capital gains and dividend tax will also increase to 20 percent for wealthyearners.
- The top 1 percent will pay an average of $73,633 more in taxes. Bloomberg News noted that, “among households with incomes between $500,000 and $1 million, taxes would go up by an average of $14,812.”
- Two million unemployed workers see benefits saved. Without the extension included in the fiscal cliff deal, millions of workers would have seen their federal unemployment insurance pulled out from under them.
- Estate tax giveaway costs billions. The estate tax rate will increase slightly to 40 percent this year with a $5 million exemption, but it would have gone to 55 percent with a $1 million exemption in the absence of a deal. As the Atlantic’s Matt O’Brien noted, “Only 3,730 households will pay the estate tax next year if the exemption is set at $5 million, versus 47,170 if it’s set at $1 million.”
What isn’t in the deal?
- 77 percent of households will see a tax hike. Due to the expiration of a cut in the payroll tax, most workers will see their taxes increase slightly in 2013. The expiration of the payroll tax cut will deal a significant blow to the economy.
- Social Security and Medicare were spared from cuts. A key priority for many Democrats, the deal did not make any changes or cuts to either program. Good news for all Americans as there is wide support for keeping these programs strong.
All told, the deal was a clear shift of the tax code in a progressive direction. That’s no surprise, as young voters in November’s election—representing nearly 1 in 5 voters—showed that making the tax code more equal was a big factor in how they voted.
The big picture: This deal creates $600 billion in new revenue that will help support the critical investments needed to keep the economy moving in the right direction.
But there are still some big battles ahead:
- The debt ceiling: Once again, it’s time for Congress to raise the debt ceiling to ensure the federal government meets the spending obligations it has already made and can continue functioning. The last time this issue came up, House Republicans’ intransigence led to the downgrade of America’s credit rating.
- The sequester: A major part of the fiscal cliff, these automatic, across-the-board spending cuts were postponed for two months. But Congress must act to ensure that a wide variety of programs and areas like defense, health care, and critical social programs aren’t blindly cut.
- The new budget: Each year Congress is supposed to approve a budget that outlines federal spending for the following fiscal year (beginning on October 1). But because their last action on this was to pass a “continuing resolution”—a short-term extension of existing spending levels that expires on March 27—they will need to act on this as well.
As a growing number of Millennials become involved in political discussions around these issues, our shared values continue to guide the country and our elected leaders in a progressive direction. If Congress wants to prove that it’s ready to lead, they should listen to young people as they make their voices heard in these debates in the months ahead.
Abraham White is a communications associate at Campus Progress. Follow him on Twitter @abwhite7.