Personal Tax Provisions
• Beginning in 2011, the highest income tax rate would, once again, be 39.6%, and the second-highest rate would be 36%.
• A 20% rate on long-term capital gains and qualified dividend income would apply for married taxpayers with income in excess of $250,000 and for single taxpayers with income exceeding $200,000.
• Itemized deductions would be reduced by 3% of the amount by which one’s adjusted gross income exceeds certain indexed statutory floors ($250,000 for married taxpayers; $200,000 for single taxpayers).
• A limit on the value of all itemized deductions — after they are reduced as described above — by limiting the “tax value” of these deductions to 28% whenever they would otherwise reduce taxable income in the 36% or 39.6% tax bracket.
The vast majority of the revenue the President’s proposals would raise would arise from the application of the personal tax changes described above. The one thing that is certain is these proposals will be changed, eliminated, embellished, etc., as they wend their way through Congress. What emerges in the fall from this legislative process no doubt will be heavily influenced by the fact that the midterm elections are imminent. We will keep you abreast of all relevant budgetary developments.
Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com.