There has been a lot of confusion and ignorance going around revolving the Bush tax cuts extension. Thankfully, Obama and the Republicans worked together and got this thing passed. Here’s a good article explaining the details aurrounding all the drama lately…
The timeline:
- Monday 12/13: The Senate voted to end debate (cloture) 83-15
- Wednesday 12/15: The Senate vote 81-19 in favor of passing Senate Amendment 4753 (which amends H.R. 4853 Middle Class Tax Relief Act of 2010)
- Thursday 12/16: Despite all the complaints by House Democrats, the House of Representatives approved the $858 billion tax deal on a final vote of 277-148.
- Friday 12/17: It’s expected that President Obama will sign this bill today.
If you’re one to keep track of who scored which political points, then I think each side came out with what they wanted. President Obama and Democrats received tax cuts for the middle class, extension of unemployment, and a stimulus by way of a payroll tax reduction. Republicans received tax cuts for the wealthy as well as a reduction in the estate tax from what it would’ve been in 2011 given no action. Fiscal conservatives, who were all the rage in November, saw nothing.
Bush Era Tax Cuts
The Bush era tax cuts, ushered in with bills from 2001 and 2003, will be extended for two years.
In addition to extending the tax cuts, there will also be a payroll tax holiday of 2% for employees. Normally, you pay 6.2% in payroll taxes (Social Security and Medicare) on your first $106,800 of earnings. For 2011, you would only be paying 4.2%, a maximum reduct of $2,136.
Unemployment Benefits Extension
The extension of unemployment benefits died a few weeks back and rose from the ashes as part of a compromise. Originally the highest tier (extended benefits), 99 weeks, was reserved for those in states (25) with high employment (8.5%+) and the deadline was November 30th. If you want a primer, here’s a fantastic one by Ezra Klein of the Washington Post as well as a discussion of unemployment in general.
Estate Tax
The estate tax, which expired this year and was scheduled to return next year at 55% with a $1 million exemption, will return with a top rate of 35% and a $5 million exemption (remember, this doesn’t include $1 million you can give away without paying a gift tax and the $5 million is per person, so a couple can pass $10 million tax free).
There were a few smaller (i.e. less headline-worthy I suppose) tax items:
- A patch for the Alternative Minimum Tax (AMT), increasing the limits for 2010 and 2011. It’s estimated that the patch will protect 20 million tax filers from AMT by raising the amount of income exempt from AMT. In 2010, the amount will be $47,450 for single filers, $72,450 for married filing jointly. In 2011, it would be $48,450 and $74,450.
- Maintains the standard deduction for married couples at exactly twice that of single filers and expanded 15% tax bracket for joint filers.
- Child Tax Credit of $1,000 extended for two years, includes a $3,000 refundability threshold.
- Earned Income Tax Credit extended for two years.
- American Opportunity Tax Credit extended for two years.
What do you think?
Source: Bargaineering
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