Reports are out that President Obama has struck a deal with Congressional Republicans on a significant taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. package that includes full extension of the Bush tax cuts and an AMT patch. In return for extending all the Bush cuts Republicans agreed to extend the policy of allowing those out of work to collected unemployment benefits for 99 weeks. The also agreed to a one year cut in the employee portion of payroll taxes, which fund Social Security and Medicare, from 6.2% to 4.2%. Below is a list of the significant points of the deal that are being reported:
- A two year extension of the Bush tax cuts for all taxpayers, as are Obama’s stimulus-funded expansions of the Child Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , the Earned Income Tax Credit, and college tuition credits.
- The payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. that employees pay, which funds Social Security and Medicare, is reduced from 6.2% to 4.2% of wages for one year.
- Those out of work can continue to collect unemployment benefits for 99 weeks. This provision, extended through 2011 by the deal, was set to expire at the end of the year, meaning that the unemployed would have been eligible for benefits only for the standard 26 weeks.
- An Alternative Minimum Tax patch to keep constant the number of people subject to the AMT (keeps an estimate 22 million more taxpayers from being subject to the AMT).
- The estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. comes back for the next two years with an exemption of $5 million and a rate of 35%.
- Businesses can expense 100% of certain investments in the first year. The deal also extends research and development tax credits.
Some of the new provisions, including the payroll tax cut and the expensing provision, are designed to stimulate consumer spending and business investment in the near-term. The President says that he wants to get past partisan politics, saying “It’s not perfect. […] We cannot play politics at a time when the American people are looking for us to solve problems.” Many Congressional Democrats are unhappy with the President’s compromise, saying he gave up too much and isn’t sticking to his campaign promises. As such, this deal is by no means final, and it could change in the coming days.
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