Compromise Tax Framework Agreement
This week, the White House and Republicans in Congress are working to enact a tax compromise, the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010.” This agreement would affect tax policies in 2011 and 2012. It extends all of the 2001 and 2003 income tax cuts (also known as the “Bush tax cuts”) through the end of 2012. These tax cuts are currently scheduled to expire at the end of 2010. Although President Obama opposed extending these tax cuts for taxpayers who make more than $200,000 (individuals) or $250,000 (joint filers), he agreed to this full extension in exchange for a one-year extension of extending emergency unemployment benefits, a one-year payroll tax cut of 2% for workers, and the extension of a number of expiring tax credits and deductions.
The provisions in the deal are as follows:
Impact on the Budget and Individual Incomes
According to the Joint Committee on Taxation, the provisions in this agreement will add $374.2 billion to the deficit in 2011, and $857.8 billion to the deficit by 2020. The Tax Policy Center has also estimated the distributional effects of the framework agreement. Compared to current law, the policies in the framework agreement would increase the average American taxpayer’s after-tax income by 5.2 percent. However, taxpayers in the lowest income quintile (the bottom 20 percent) would receive an increase of only 3.2 percent. Taxpayers in the highest income quintile would receive an increase of 5.6 percent.