BEYOND THE BASELINE: American tax payer relief act of 2012

February 16, 2013

Beyond the Baseline is a legal column written by Tom Kaufmann. Tom is a partner in the Chicago-based law firm of Querrey & Harrow, which shares its home office with the NBRPA.  Tom is also a principal in the Kaufmann Sports Management Group and a proud sponsor of the NBRPA.  The material in this column was prepared by the attorneys of Querrey & Harrow. It is intended for educational purposes only. The information contained herein should not be construed as legal advice.

NBRPA Members with legal questions for Tom may email those questions to

How can the same piece of legislation be scored as both a $3.9 trillion tax cut and a $620 billion tax increase? It all depends upon your frame of reference.

At about 2:00 a.m., January 1, 2013, the Senate passed the American Taxpayer Relief Act of 2012 (ATRA) to avoid the “fiscal cliff” that had been set in motion in 2001 and renewed in 2010. Some 21 hours later, the House adopted the bill without amendment and sent it to the President. A cascade of tax increases thus was avoided.

Compared to the baseline of the 2012 tax law, the new legislation is projected to add $620 billion in tax revenue over the next ten years. But compared to the enormous tax increases that had been scheduled by prior Congresses, the new law is a tax cut. Most of the “foregone revenue” (scored at a loss of $1.8 trillion in taxes) is attributable to finally adding a permanent inflation adjustment to the Alternative Minimum Tax (AMT), eliminating the need for annual “patches.” The irony is that Congress never intended to collect those taxes, but each year the “patch” would need to be offset by other tax increases.

Key elements of the new law:

• The 10%, 15%, 25%, 28%, 33% and 35% tax brackets from the Bush tax cuts are made permanent.

• A new 39.6% tax bracket applies to taxable income above $400,000 (singles), $425,000 (heads of households) and $450,000 (joint filers).

• The phase-out of personal exemptions and the reduction in itemized deductions begin to apply at adjusted gross income of $250,000 (singles), $275,000 (heads of households) and $300,000 (joint filers).

• For singles with income over $400,000 and marrieds filing jointly with more than $450,000, the capital gains tax rate and the qualified dividend tax rate go to 20%. In addition, the 3.8% additional tax on investments under the Affordable Care Act will apply at this level of income, bringing the combined tax rate to 23.8%. The top combined tax rate on net investment income goes to 43.4%.