Obama Signs American Taxpayer Relief Act Making 82% of Bush Tax Cuts Permanent - 'Fiscal Cliff' Deal Locks in $2.8 Trillion in Tax Cuts for Wealthy

On January 2, 2013, President Barack Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law, resolving the ‘fiscal cliff’ crisis by making permanent 82% of President Bush’s tax cuts—approximately $2.8 trillion of the $3.4 trillion total Bush tax cut package estimated by the Joint Committee on Taxation and Congressional Budget Office over 2013-2022. The Senate passed the compromise bill at approximately 2am on January 1, 2013 by a margin of 89-8, with overwhelming bipartisan support cementing the Bush-era tax structure as the new normal. ATRA made permanent all Bush tax cuts for single filers earning under $400,000 and couples earning under $450,000 per year, while allowing the top rate to return to 39.6% (the Clinton-era rate) only for income above those thresholds. The legislation maintained the preferential 15% rates on capital gains and dividend income for most taxpayers, raising them to 20% only for the highest earners. It kept the estate tax rate at 40% (up from 35% in 2012) while exempting estates valued under $5.12 million (indexed for inflation), compared to the $1 million exemption that would have returned without the deal. The Act allowed the restoration of limits on personal exemptions and itemized deductions for filers with adjusted gross income above $300,000 for married couples and $250,000 for singles. Only 18% of the Bush tax cuts were allowed to expire, representing $624 billion in revenue restoration over the decade. By making the vast majority of Bush tax cuts permanent, Obama and the Democratic-controlled Senate locked in a tax structure designed by Republicans to benefit the wealthy and corporations, permanently reducing the government’s revenue-raising capacity compared to pre-Bush tax code. The deal represented a catastrophic failure of Democratic Party resistance to Republican tax-cutting ideology: rather than allowing all Bush tax cuts to expire as scheduled and then proposing targeted middle-class relief, Democrats accepted the Republican framing that low taxes on the wealthy were the default policy requiring active effort to reverse. The ‘fiscal cliff’ itself was artificial crisis manufactured by the Bush administration’s use of sunset provisions in the 2001 and 2003 tax cuts, but this manufactured crisis succeeded in making temporary tax cuts permanent. Obama’s capitulation entrenched supply-side economics as bipartisan consensus, dramatically limiting future progressive tax policy options.