Compromise on the Bush Tax Cuts, Will it Pass?

Dec 12th 2010
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Obama and the Republicans have reached a compromise on the Bush Tax Cuts. However this deal has not been endorsed by the Democrats in the House and therefore it has not passed. It is expected that some form of the below bullet points will be passed before year end. However, many expect that a further compromise on the rate and/or the exemption threshold of the estate tax will need to be made in order to get the votes needed to pass.

The current plan extends Bush-era income tax rates for all taxpayers for two years, extends unemployment compensation for thirteen months, cuts payroll taxes for one year, sets new estate tax rates and fixes the alternative minimum tax. Here is a summary of the proposed plan:
• Extension of the top individual tax rate of 35% for 2011 and 2012.
• Sets the top capital gains and dividends tax rate at 15% for 2011 and 2012.
• Creates a 13 month extension of unemployment benefits.
• Calls for a two year reinstatement of the estate tax with a top rate of 35%. The first $5 million would be exempt for estate taxes.
• A reduction in the employee portion of social security taxes from 6.2% to 4.2% for 2011 (intended to replace the expiring Making Work Pay credit). This 2% drop is a huge benefit to working Americans (a person earning $50,000 will get an extra $1,000) but will not benefit business owners.
• Bonus depreciation of 100% for equipment investments in 2011.
• An extension for two years of many current tax benefits that were scheduled to expire such as the research and development tax credit.
• An extension of the AMT patch for 2010 and 2011 to prevent more than 20 million taxpayers from having to pay the alternative minimum tax.
Stay tuned as the next week should be interesting as more deals and another compromise will likely be forthcoming.

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