Washington, DC

January 10, 2013

Chart ofthe Week Stat of the week

What the initial Fiscal Cliff deal means for Metro DC

Issue
Payroll tax

2012
4.2 percent withheld from employees paychecks Personal income tax rates ranged from 10.0 percent to 35.0 percent

2013 / DC impact
Expiration of payroll tax holiday raises withholding to 6.2 percent; impacts 3.3 million people in the Metro DC workforce; raises annual payroll taxes by $1,692 for the typical area household New top marginal rate established at 39.6 percent for personal/joint filers with income above $400,000/$450,000, respectively; impacts roughly 80,000 filers in the Metro DC region Long-term capital gains and dividends tax rises to 20.0 percent for high earners. In addition, health care reform levies a new surtax of 3.8 percent on dividends/capital gains for individual/joint filers with income above $200,000/$250,000, respectively, moving the rate to 23.8 percent for this segment

Individual income tax rates

Capital gains tax rate

15.0 percent rate for capital gains and qualified dividends

Tax credits for businesses

Various corporate tax breaks in effect to 31 business tax breaks and 12 energy tax breaks extended, encourage investment in renewable including tax credits for research and experimentation; straight-line energy facilities; provide for accelerated cost recovery for qualified leasehold improvements; a credit rate depreciation of qualifying property, etc. freeze for low-income housing; and several others $3.8 trillion (fiscal year 2012)

Federal spending

On January 1, 2013, Congress passed the American Taxpayer Relief Act. The next day, President Obama signed the bill into law, narrowly averting the Fiscal Cliff by delaying sequestration for two months and preventing automatic tax increases that were scheduled to commence after the New Year. Although the Act provided a short-term fix, it failed to address the looming debt ceiling, which could bring government to a standstill in late February (or as soon as the national debt reaches $16.4 trillion) if additional action is not taken by Congress. Although the compromise on taxes helped provide some degree of clarity, the spending side of the debate was unaddressed in the latest round of budget negotiations. Federal spending accounts for approximately one third of gross regional product in the Metro DC economy, and as long as the threat of sequestration remains, many Metro DC tenants are expected to maintain their wait-and-see approach to real estate decisions until they are better able to forecast their futures.