The Wall Street Journal
By: Laura Saunders
December 7, 2010
President Barack Obama called the bipartisan tax agreement announced on Monday a "framework." As yet there is no legislative language or even a comprehensive outline of the proposals, and its passage by Congress isn't assured.
But its broad parameters do address a range of tax issues that have been in question for months or years. Here's how the various provisions could affect taxpayers.
Individual tax rates: The agreement would extend the Bush-era tax rates for two years for all taxpayers. Current rates would remain in place, with a top rate of 35%.
Capital gains: Current rates would be extended, and the top rate on long-term capital gains would remain at its historic low of 15% for two years. The rate applies to gains on assets held longer than a year.
Dividends: Current rates would be extended, and the top rate for qualified dividends--those on most stocks held longer than two months--would remain 15% for two years.
Payroll tax: The agreement calls for a two-percentage-point cut in the employee's portion of payroll (FICA) taxes, just for 2011. The change would make the tax 4.2% instead of 6.2% on the first $106,800 of wages per worker, according to the nonpartisan Tax Policy Center. No phase-in or phase-out or other limit was specified by the White House document, so the maximum a working couple could pocket is $4,272--$2,136 per individual wage-earner.
Alternative minimum tax: A two-year "patch," for 2010 and 2011, would keep the AMT exemption at or near current levels. Without the patch, 21 million additional taxpayers would owe AMT for 2010.
Estate and gift tax: No language on the estate or gift tax appeared in the document released by the White House, but a source familiar with the framework said it includes an estate-tax provision for 2011 and 2012 that has a top rate of 35% and an exemption of $5 million per individual.
This agreement appears to draw on the Lincoln-Kyl estate-tax proposal introduced earlier in the Senate, which also proposed a top 35% rate and $5 million exemption, but further details are unavailable. It is also unclear how or if the estates of those who died in 2010 would be affected by the agreement.
Extenders: The framework doesn't address several popular "extenders" that will expire this year, but White House officials said they were included in the agreement for 2010 and 2011. Among them: transfers of IRA assets to charities by those over age 70½; a state and local sales-tax deduction for itemizers; an additional standard deduction for real-estate taxes; and a deduction for teachers' expenses.
Unemployment insurance: Federal benefits would be extended at their current level for 13 months, through the end of 2011.
Provisions for lower-income taxpayers: The framework proposes to extend the $1,000 child credit and maintains its expanded refundabilty for working families for two years. It would also expand the Earned Income Tax Credit for larger families and married couples, and maintain both the higher-education tax credit and its partial refundabilty for the same period.
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