Daily Tax Update - December 10, 2010: President Expresses Confidence Tax Cut Bill Will Pass

PRESIDENT EXPRESSES CONFIDENCE TAX CUT BILL WILL PASS: Today in an interview, President Obama predicted that Congress would pass the compromise tax package despite the objections of House Democrats. The President said, "Nobody – Democrat or Republican – wants to see people's paychecks smaller on January 1 because Congress didn't act." The President added, "And I think that the framework that we've put forward, which says not only that people's taxes don't go up on January 1, but also that we extend unemployment insurance for a year, that we make sure that key provisions like the college tax credit, the child tax credit, the earned-income tax credit are included – that that framework is going to serve as the basis for compromise." Obama stated, "The bottom line is for everybody to act responsibly and to think not in terms of abstract political fights here…on Capitol Hill, but to think about those families that, in the middle of the holiday season, are trying to figure out – are they still going to have unemployment benefits at the end of this month?" Obama added, "I'm confident that we're going to be able to get this resolved by the end of the month."

  • The bill ("The Leadership Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010") introduced last night by Senate Majority Leader Harry Reid contains only a few minor changes from the framework outlined by President Obama earlier this week. The tax provisions in the bill have been estimated to cost approximately $801 billion over ten years. Republicans may offer an amendment to offset some of the cost of the bill. A key procedural vote to cut off debate is scheduled for Monday afternoon in the Senate.
  • It is anticipated that Democrats will try to offer several amendments on the Senate floor, including setting the estate tax rate to the 2009 level of 45-percent and a $3.5 million-per-person exemption level, rather than the 35-percent rate and $5 million exemption level outlined in the framework.

The bill:

  • Extends by two years all of the 2001 and 2003 individual income tax cuts.
  • Includes a $120 billion payroll tax reduction for workers.
  • Extends unemployment insurance benefits for 13 months.
  • Extends the American Opportunity Tax Credit (college tuition), the Child Tax Credit and the Earned Income Tax Credit.
  • Allows businesses to deduct 100% of certain investments in the first year.
  • Extends for two years the state and local sales tax deduction.
  • Extends the current capital gains and dividends rates for all taxpayers for an additional two years, through 2012.
  • Extends Alternative Minimum Tax relief for two years.
  • Increases the estate tax exemption to $5 million (indexed for inflation) and reduces the top rate to 35 percent for 2011 and 2012. 
  • Phases-out the premiums for mortgage insurance as interest that is qualified residence interest – Under current law, a taxpayer may itemize the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an AGI in excess of $110,000. The bill extends this provision for an additional year, through 2011.
  • Extends through 2011 the per-gallon tax credits and outlay payments for ethanol.
  • Extends the Section 1603 grants in lieu of credits program for renewable energy in the American Recovery and Reinvestment Act for one year.
  • Extends through 2011 the credit under Section 25C for energy-efficient improvements to existing homes.
  • Reinstates for two years (through 2011) the research credit.
  • Extends for two years (through 2011) the active financing exception from Subpart F of the tax code.
  • Extends for two years (through 2011) the current law look-through treatment of payments between related controlled foreign corporations.
  • A detailed summary of the bill can be accessed here.  

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