The President says the concept behind this compromise proposal is to help all persons that are in need, and allow the tax code to work in unison with recent bills on healthcare and small business.

As you probably know by now, President Obama dropped a bombshell last week with his Republican-backed, compromise tax proposal. It’s not yet law, and is likely to face stiff political opposition, but the results are so far-reaching that it’s worth outlining the bold points of the proposal. (To read more, The Associated Press has a good run-down of the highlights.)

      The centerpiece of the proposal is the extension of all Bush-era tax cuts for two more years, and this includes the wealthiest tax brackets, with the addition of special programs and incentives to help the average and low-income taxpayer.

Changes to note include:

 

  1.  
    • An extension of unemployment benefits through 2011
    • A reduction of the payroll tax for Social Security, from 6.2% to 4.2%, that immediately increases take-home pay
    • An extension of the current child tax credit of $1,000 for two years.
    • A Tuition tax credit with a maximum of $2,500 will be extended for two years
    • The Alternative Minimum Tax will be updated, keeping 21 million taxpayers from feeling its effects for two years
    • Business can take a 100% write-off of capital investments
    • The capital gains tax and dividends rate will remain at 15% (rather than rising to 20% for capital gains and as much as 39.5% for dividends in the case of the highest earners). Both proposals bode well for investors
    • The top rate for the estate tax will be 35% after a $5 million exemption ($10 million for married couples), down from the 2009 levels of 45% after a $3.5 million exemption

 

The President says the concept behind this compromise proposal is to help all persons that are in need, and allow the tax code to work in unison with recent bills on healthcare and small business. Unfortunately, the proposal is estimated to cost between $700 and $900 billion, to be tacked onto an already immense national debt. For this reason alone the proposal will meet with opposition, and the fight likely will come to the tax breaks for the wealthiest and the historically low estate tax since both measures specifically help the wealthy.

This is the plan in a nutshell, at least, and these are the elements to watch in the political fight to ensue.

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