So who does President Obama see as the middle class? He has repeatedly used earnings of $250,000 for married couples and $200,000 for single individuals as the threshold for what he considers the wealthy and those who should not benefit from tax cuts.
He reiterated that on July 9 by calling for a one-year extension of the Bush-era tax cuts for those earning under $250,000 per year. However, the Republicans continue to insist on a one-year extension for all taxpayers. The Republicans argue that no one should see a tax hike this year, not families, not small businesses and other job creators.
The Republican-controlled house has indicated its intent to pass a one-year extension of the Bush-era tax cuts for all taxpayers while the Democratic-controlled Senate intends to pass an extension limited to taxpayers with incomes under $250,000 before the August recess. The result will be a stalemate. That means we will have to wait for a compromise bill later in the year.
This spring, at a speech before the National Press Club, the Commissioner of the Internal Revenue Service, Doug Shulman, warned of “a real disaster” if Congress misses the December 31 deadline to decide on major tax provisions. Mr. Shulman reminded everyone that the 2010 “lame duck” session deadlock to extend the Bush tax cuts for 2011 resulted in a delayed start for the 2011 tax season.
The Bush tax cuts currently set to expire at the end of 2012 include:
- Reduced individual tax rates (10%, 15%, 25%, 28%, 33%, and 35%).
- Reduced long-term capital gain rates (maximum 15%, but 0% for some taxpayers).
- Reduced qualified dividend rate (15%/0%).
- No phase-out for personal exemptions (the personal exemption phase-out, or “pep,” limitation).
- No phase-out for itemized deductions.
- Expanded tax credits, including the earned income tax credit (EITC), child tax credit, adoption credit, and dependent care tax credit.
- Reduced marriage penalty (i.e., increased standard deduction and upper limit of the 15% bracket for married taxpayers to 200% of that for singles and an increased income level at which the EITC begins to be phased out).
- Modified education tax incentives (including Coverdell education saving accounts, the American Opportunity Credit, the student loan interest deduction, favorable tax treatment of certain scholarships and fellowships, and an exclusion for employer-provided educational assistance).
- Individual income tax rates will rise to 15%, 28%, 31%, 36%, and 39.6%.
- Long-term capital gains will be taxed at a maximum rate of 20%.
- Dividends will be taxed as ordinary income.
- The limit on personal exemptions will be restored such that, for higher-income taxpayers, the total amount of exemptions that can be claimed will be reduced by 2% for each $2,500 by which the taxpayer's adjusted gross income (AGI) exceeds a certain inflation-adjusted threshold.
- The limit on itemized deductions will be restored such that, for higher-income taxpayers, the total amount of itemized deductions will be reduced by 3% of the amount by which the taxpayer's AGI exceeds a certain inflation-adjusted threshold.
- The child tax credit, adoption credit, and dependent care tax credit will all be cut back.
- The standard deduction and upper limit of the 15% bracket for married couples will fall from 200% to 167% of the deduction and upper limit for unmarried taxpayers, and married taxpayers will be subject to the same EITC phase-out levels as unmarried taxpayers.
- The education incentives will disappear altogether or be significantly cut back.
If you have questions or wish to explore strategies to hedge against whatever Congress decides to do – or not do – please give our office a call.
0 comments:
Post a Comment