Our leaders in Washington are working hard on a tax relief compromise that will extend the Bush-era tax cut packages enacted in 2001 and 2003.

A summary of the Obama-GOP tax deal, released by the Senate, is now pending on the Senate floor. The tax cut compromise summary, obtained from the Senate Democrats website, calls for temporary tax relief in the following areas:

• Temporary Extension of Tax Relief
• Temporary Individual Alternative Minimum Tax (AMT) relief
• Temporary Estate Tax Relief
• Temporary Extension of Investment Incentives
• Temporary Extension of Unemployment Insurance
• Temporary Payroll Tax Holiday
• Temporary Extension of Certain Expiring Provisions

Here is the summary of the Obama-GOP tax cuts compromise:

Tax Cuts Compromise Package Summary
December 9, 2010

I. Temporary Extension of Tax Relief

Two major bills enacting tax cuts for individuals expire at the end of 2010: the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The following package extends these provisions from EGTRRA and JGTRRA for an additional two years, through 2012, and will provide important tax relief to American taxpayers. The following package also extends a number of provisions enacted as part of EGTRRA that were modified in the American Recovery and Reinvestment Act.

More on The Obama–GOP Tax Relief Compromise

There’s good news for American taxpayers and bad news for the President and Democrats. Today, the President announced a tentative deal with the Republicans in Congress to extend the Bush era tax cuts at all income levels for two years. In return, the President secured Republican approval to keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

The tentative agreement highlights the chaos and strains that Mr. Obama faces in his own party as he plots a course between his desire to get things done and retreating on his own principles.

“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”

The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing the nation’s long-term fiscal imbalances.

The tentative deal would include the:

• Reduction of the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year
• Continuation of a college-tuition tax credit for some families
• Expansion of the earned-income tax credit
• Provision to allow businesses to write off the cost of certain equipment purchases
• Top rate of 15 percent on capital gains and dividends would remain in place for two years
• Alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it
• Provision for a 13-month extension of jobless aid for the long-term unemployed

Perhaps the biggest concession by the President to the Republicans was on estate taxes. Mr. Obama agreed to a deal on the federal estate tax that allows an exemption of $5 million per person and a maximum rate of 35 percent. — a higher exemption and far lower rate than many Democrats wanted.

“The House Democrats have not signed off on any deal,” Representative Chris Van Hollen of Maryland, who has been representing House Democrats in formal negotiations on the tax issue, said Monday night. “We will thoroughly review and discuss the proposed package in the caucus.”

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers. Mr. Obama noted that he, too, still strongly disagreed with the Republican insistence on extending the tax breaks for the highest earners. “Ever since I started running for this office, I’ve said that we should only extend the tax cuts for the middle class,” he said, acknowledging that he had been thwarted in one of the chief goals of his presidency.

These major concessions by the President are substantial. They mark the beginning of a new trend – marked infighting between Obama and Democrats, increased compromise with Republicans on issues and less support by the American public.

And it’ll get worse. In January, the Republicans gain control of the House.

All politics aside, most Americans believe the extension of the Bush era tax cuts is essential to economy recovery – if just for the psychological lift it represents.

Source: nytimes.com

President Obama and his administration are seeking almost a $1 trillion tax increase over the next decade on US taxpayers earning more than $200,000. He also wants to take an additional $400 billion from businesses even as it retools a proposed crackdown on international tax-avoidance techniques; according to a Feb 2, 2010 Business Week article.

Believe it or not, the Obama income tax proposal would actually reinstate income tax rates enacted by former President Bush 10 years ago. The income tax rates for single Americans making over $200,000 or joint filers earning more than $250,000 would increase to 36% and 39.6% respectfully. The plan also calls for eliminating preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas.

“This set of tax reforms strikes a balance between targeted tax cuts to spur investments in job growth and innovation here at home, middle-class tax relief to make our tax system more fair, measures to crack down on abuses that send jobs overseas, and long-term fiscal discipline,” Treasury Secretary Timothy F. Geithner said in a statement.

Obama’s proposed $143.4 billion in new tax cuts for individuals who earn under $200,000. While the budget sets out $93.5 billion in gross tax reductions for businesses, overall they would face a net tax increase.

“The proposed budget’s $300 billion in tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes,” said Senator Charles Grassley of Iowa, the ranking Republican on the tax-writing Senate Finance Committee. “The tax increases in the budget dwarf the tax relief.”

President Obama asked Congress to extend all of Bush’s tax cuts that apply to Americans earning under $250,000. He also proposes almost doubling a tax credit that helps Americans pay for child care and increasing federal subsidies for Individual Retirement Accounts.

The budget assumes the federal estate tax, which expired Jan. 1 and was replaced with a capital-gains tax, will be reinstated retroactively with a 45 percent rate applied when married couples’ estates exceed $7 million. If Congress doesn’t act, the estate tax in 2011 will be reinstated to a 55 percent rate applied to estates valued at more than $1 million.

Obama’s budget also assumes Congress will continue to index the alternative minimum tax for inflation. The minimum tax can impose higher rates on families earning between $75,000 and $500,000 when their deductions are too high relative to their income. It was originally intended to affect only millionaires and is now ensnaring people with lower incomes because it was never indexed for inflation.

The Obama tax budget proposal will most certainly face opposition from Congress.  This proposal will also be opposed by the influential and wealthy US taxpayers.  Is Obama’s tax proposal political hari-kari?

source: businessweek.com