In order to stave off a tax hike on all Americans, President Obama announced that he is willing to compromise with Republicans on the fate of the Bush tax cuts.
Obama’s deal would extend the tax cuts for all taxpayers for two years and provide for a two-year AMT patch.
In addition to extending the tax cuts, the compromise includes the following measures:
- Unemployment Benefits – Unemployment benefits would be extended for 13 months.
- Social Security Rate Reduction – In 2011, the social security tax rate would be lowered from 6.2% to 4.2% on the first $106,800 in wages.
- Tax Credit Extension – Popular tax credits such as the earned income credit, the child credit and education credits would be maintained at 2010 levels for the next two years.
- Business Tax Incentives – The research and development credit would be extended for two years (2010-2011) and a new temporary option for businesses to write off 100% of their expenses in 2011 would also be included.
- Estate Tax – The estate tax rate would be lowered to 35% with a $5 million exemption. The proposal is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before the date of introduction. The proposal is effective upon date of introduction for gift and generation-skipping transfer taxes.
The total cost of the deal is estimated to be between $600 and $800 billion, nearly the size of the President’s much maligned American Recovery and Reinvestment Act of 2009. Many of the measures included in the deal are exempt from the “pay-go” rules, while others will be deemed “emergency spending,” adding to an already record-shattering Federal deficit.
The deal has a long fight ahead of it before enactment, however, members of President Obama’s own party have signaled their opposition to such a proposal.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.