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k What the initial Fiscal Cliff deal means for Metro DCWashington, DC January 10, 2013

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 werescheduled to commence after the New Year. Although the Act provided a short-term fix, it failed to address the looming debtceiling, which could bring government to a standstill in late February (or as soon as the national debt reaches $16.4 trillion) ifadditional action is not taken by Congress.

Although the compromise on taxes helped provide some degree of clarity, the spendingside of the debate was unaddressed inthe 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 theirwait-and-see approach to real estate decisions until they are better able to forecast their futures.

Issue 2012 2013 / DC impact

Payroll tax4.2 percent withheld fromemployees paychecks

Expiration of payroll tax holiday raises withholding to 6.2 percent;impacts 3.3 million people in the Metro DC workforce; raisesannual payroll taxes by $1,692 for the typical area household

Individual income tax ratesPersonal income tax rates rangedfrom 10.0 percent to 35.0 percent

New top marginal rate established at 39.6 percent for personal/jointfilers with income above $400,000/$450,000, respectively;impacts roughly 80,000 filers in the Metro DC region

Capital gains tax rate15.0 percent rate for capital gains

and qualified dividends

Long-term capital gains and dividends tax rises to 20.0 percentfor high earners. In addition, health care reform levies anew 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

Tax credits for businesses

Various corporate tax breaks in effect toencourage investment in renewable

energy facilities; provide for accelerateddepreciation of qualifying property, etc.

31 business tax breaks and 12 energy tax breaks extended,including tax credits for research and experimentation; straight-line

cost recovery for qualified leasehold improvements; a credit ratefreeze for low-income housing; and several others

Federal spending $3.8 trillion (fiscal year 2012)

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