The last minute efforts of Congress and the President to deal with the expiration of the Bush tax cuts on December 31 have been interesting, to say the least. It has also contributed to making year-end tax planning the most complicated and speculative it has been in recent memory, if ever.
The current proposal, backed by President Obama and most Republican Congressmen and Senators, is embodied in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The Senate and House will be voting on the Act this week. What is keeping things interesting is that the House Democratic caucus met on Thursday and voted to reject the plan. What this means is that for the Act to clear Congress is that it will probably need the votes of many of the lame duck "blue dog" Democrats who were defeated in the recent election. An interesting artifact of the recent election is that while the general shift in Congress was towards the right on economic issues, many Democrats who were conservative on economic issues were swept out of office as part of the big wave, leaving the remaining Democrats further to the left on economic issues than where they were as a whole prior to the election.
For those not following things, the following is a list of the key tax provisions of the Act:
-Existing income tax rates will remain in place for another two years.
-Personal exemption phase-out repeal is delayed for two years.
-The temporary repeal of the itemized deduction limits are extended for two years.
-Capital gains and qualified dividend rates remain the same for two years.
-Individual alternative minimum tax exemptions are increased for two years.
-The unified credit for estate and gift taxes is increased to $5 million per person and $10 million per married couple, and will be indexed for inflation beginning in 2012. The generation skipping tax exemption will also be at $5 million. The exemption is portable between spouses. A 35% maximum rate is imposed for two years for estate, gift and generation skipping taxes. The new tax regime is retroactive to January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising in 2010.
-FICA tax reduction for employees in 2011 from 6.2 percent to 4.2 percent.