The other half of the spending cuts would be prevented through replacement spending cuts, half in defense and half in non-defense programs, said Senator Sherrod Brown, an Ohio Democrat.
Miscellaneous tax breaks would continue through 2013, including breaks for corporate research, multinationals’ overseas financing operations and wind energy. Many of those breaks had expired at the end of 2011. Companies would get 50 percent bonus depreciation.
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The agreement wouldn’t avert all of the tax increases set to take effect this year. A two-percentage-point cut in the payroll tax has expired and isn’t part of the emerging deal.
That will make paychecks smaller in 2013; someone earning $50,000 and being paid twice a month will lose $41.67 per paycheck. The payroll tax cut’s expiration will end transfers from the general fund to Social Security to cover its cost.
Taxes on top earners’ wages and unearned income such as capital gains will take effect, due to the start of revenue increases from the 2010 health care law.
The Internal Revenue Service told employers last night to withhold taxes from paychecks assuming that lapsing tax cuts would expire as scheduled and said it would issue updated tables if Congress passes an extension. Employers should implement the higher withholding by Feb. 15, the IRS said in a statement issued 12 minutes before midnight.
The agreement also sets up yet another fiscal fight, this time over raising the U.S. debt ceiling, which reached its $16.4 trillion limit yesterday.
Treasury Secretary Timothy F. Geithner began taking so- called extraordinary measures to finance about $200 billion in debt this year. Under normal circumstances, that would last about two months.
Republicans say they’ll use the leverage created by the debt ceiling to force Obama to accept spending cuts, particularly in entitlement programs.
Obama resisted that notion yesterday, saying he wants more tax increases that would come in part from limiting tax breaks and that he won’t accept Republican plans to “shove” spending cuts past him.
“If they think that’s going to be the formula for how we solve this thing, then they’ve got another thing coming,” he said. “That’s not how it’s going to work.”
—With assistance from Inyoung Hwang, Whitney Kisling and Margaret Collins in New York and Heidi Przybyla, Roxana Tiron, James Rowley, Rich Miller, Shobhana Chandra, Peter Cook and Margaret Talev in Washington. Editors: Jodi Schneider, Michael Shepard