Late on Dec. 6, President Obama announced that the Administration and the Republicans had arrived at a “framework for a bipartisan agreement” that would extend the Bush-era tax cuts and give workers a two-percentage-point reduction in Social Security tax for 2011. How this agreement will be received by Congressional Democrats is uncertain at this time.
Although details of the agreement have yet to be released, its major components, as described in a Fact Sheet released by the White House, are as follows:
- The EGTRRA/JGTRRA income tax rates would be retained for two years for everyone. Presumably, current law’s favorable tax treatment of long-term capital gains and qualified dividend income would be retained as well.
- A two year alternative minimum tax (AMT) patch, which would prevent exemption amounts for individuals from dropping and allow personal credits to offset AMT.
- Retention of key tax cuts for working families (earned income tax credit, child tax credit, American Opportunity Tax Credit).
- Allowing businesses to write off 100% of their equipment and machinery purchases during 2011.
- A two-year extension of the R&D tax credit and other tax incentives to support business expansion. (It is not clear at this point whether the bipartisan agreement will extend all of the business and individual tax breaks that expired at the end of 2009.)
- Reducing the workers’ share of Social Security tax for 2011 from 6.20% to 4.20%.
- Extending unemployment benefits for 13 months.
Reportedly, the bipartisan agreement also would reinstate the estate tax with a $5 million exemption amount and a 35% top tax rate