The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
It looks like every taxpayer, rich and not so rich, will get a tax gift this year.
On Monday, President Barack Obama announced that the tax task force he appointed earlier this month has agreed on a plan to keep the current six income tax rates and other Bush-era tax provisions in place for two more years.
This includes the tweaks that ease the marriage tax penalty and the $1,000 per child tax credit, as well as 2009 stimulus tax breaks such as the American Opportunity tax credit to help pay for higher-education costs.
The estate tax also is part of the deal.
Under current law, it will return Jan. 1, 2011. But instead of applying to estates of $1 million or more, the compromise plan calls for the estate tax to be imposed at a top rate of 35 percent on estates exceeding $5 million. This, too, will last for two years.
Obama gave up his first major tax break, the Making Work Pay credit that was the centerpiece of the 2009 stimulus package, as part of the deal with the Republicans. The credit was designed to help ease the 6.2 percent payroll tax that is collected up to a certain wage limit to finance Social Security. It is set to expire at the end of the year.
But workers still will get relief. Under the proposal, the Making Work Pay credit will be replaced by a temporary 2 percent reduction in every employee’s payroll tax. Number crunchers say that for a household earning $50,000 per year, the payroll tax cut would save them $1,000.
Democrats express opposition
The one major hurdle facing the proposed tax plan is the president’s own party.
House and Senate Democrats leaders last week held votes calling for an end to the current low tax rates for wealthier Americans. Democrats in the House prevailed, but the Senate rejected efforts to raise taxes on households earning more than $250,000.
Many Democrats have taken a hard line with regard to extending all the tax cuts, saying they would rather let tax rates rise for everyone than continue tax benefits for the wealthy.
Obama disagrees. While acknowledging that there are provisions with which he disagrees, “I am not willing to let working families across this country become collateral damage for political warfare here in Washington,” he said in announcing the tax deal.
Obama and the vice president are scheduled to meet with representatives and senators from their party this week in an effort to sell the deal to them.