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Congress was finally able to come to an agreement regarding the tax cuts that were set to expire at the end of this year. They have passed a bill that will effect all income levels. The bill will basically keep the Bush era tax cuts and allow for a few other tax saving provisions. Lawmakers did not think it would be prudent to increase taxes in this economy and their plan is to give tax savings that will allow for economic growth.
Wage-earners will get a new payroll tax break; wealthy heirs get a lower estate-tax rate; and businesses gain an unexpected plum—a big tax write-off for new equipment purchases…
The bill provides a two-year extension for all income brackets, kicking the issue into the next Congress and into the middle of the 2012 election…
The biggest winners, at least in dollar terms, are individual taxpayers, whose tax benefits account for roughly $700 billion of the bill’s total $858 billion 10-year price tag.
The measure includes retention of the Bush-era tax rates and breaks for all earners for two years, as well as protection through 2011 from the Alternative Minimum Tax for more than 20 million mostly middle-class households. It includes a new payroll-tax credit for virtually all workers, as well as a 13-month extension of benefits for the long-term unemployed. The wealthy won a lowered estate tax rate for the next two years of 35% on estates of more than $5 million.
Middle-income Americans fared best from the deal, due in large part to the new payroll-tax holiday, according to the nonpartisan Tax Policy Center. Those with the largest average gain in after-tax income, compared with current tax policies, earn between $35,000 and $64,000. They gain about $613, or 0.9% of their income.
Lower-income earners will benefit from continued expanded availability of the child credit and other breaks. But the substitution of Mr. Obama’s Making Work Pay break—a tax subsidy for lower income people—with a payroll-tax holiday will be a net loser for them.
Higher-income people took the most cash from the deal. The average gain for households with $500,000 to $1 million in income was $3,859 compared to current tax levels. Democrats had wanted tax rates for this group to rise.