In passing a tax bill to forestall the "fiscal cliff" -- the overnight rise of a wide array of taxes combined with deep spending cuts -- lawmakers agreed to cut back on certain tax exemptions for high-earning households.
During the 2008 presidential campaign, Barack Obama promised to limit personal exemptions and itemized deductions for high-income tax filers. These provisions were in force in the 1990s, but under President George W. Bush, they were minimized starting in 2006 and ultimately eliminated by 2010. The elimination continued for an additional two years following a December 2010 agreement between Obama and Congressional Republicans, but they were poised to return in full force as a part of the fiscal cliff.
The fiscal cliff bill, passed by the House and Senate on Jan. 1, 2013, did something very close to what Obama pledged in 2008. The bill brought back the Personal Exemption Phaseout, commonly known as PEP, as well as the "Pease limitation" for taxpayers earning $250,000 (for individuals) and $300,000 (for couples filing jointly).
In practical terms, the provision increases the amount of tax paid by filers who make at least this much in income. It will do so by limiting how much high earners can claim on their return as personal exemptions and itemized deductions. Taxpayers below the income thresholds are not affected.
The income thresholds are slightly different than what Obama had envisioned, but they are close. We rate this a Promise Kept.