A quick cheat sheet of what's on the table in the early going of D.C. deal making:
- The Obama Administration wants to keep ("extend" in Washington speak) the Bush tax cuts for what it defines as middle Americans: married couples with income below $250,000 and individuals with income under $200,000. Higher income earners would see their income tax rate revert to the pre-Bush levels, with the highest rate rising from today's 35 percent to 39.6 percent.
- Most Democrats are in sync with this proposal, though a small cadre are questioning whether it is prudent to raise any income taxes given the fragile state of the recovery.
- Republicans don't want to see income tax rates rise now or later.
The Tax Foundation has ginned up a 2011 tax calculator that shows you what your federal tax bill might look like in three different scenarios: If the tax cuts expire, if the tax cuts are extended, and if the Obama Administration's proposal finds the necessary votes.
We're not even out of the first inning of the Great Tax Debate: 2011, so it's far too early to guess at what we might end up with. Nor is there even any consensus on if we'll get a deal done before the mid-term elections or if the decision-making will be pushed off into a lame-duck session. And we can't rule out a replay of the estate-tax debacle in which Congress opted to do nothing and kicked the can down the road. Right now that last option is seen as a very long shot, but that's not to say impossible.
Tax Outlook for Dividend Income Retirees worried that the tax rate on dividend income will revert to being taxed as ordinary income can relax. Neither side of the aisle wants that to happen. The proposal from the White house is that the dividend tax rate for most Americans will stay at 15 percent, and only the high earners (those above the Obama administration's definition of middle class) will see their dividend tax rate (and their long-term capital gains rate) rise to 20 percent. So while a wealthy couple could see their top income tax rate rise to 39.6 percent if the Obama proposal becomes law, that same couple's top dividend and gains rate would be 20 percent. As it stands right now, the compelling argument for dividend investing will not be derailed by tax reform.
More MoneyWatch articles:
What's Next for Taxes? Capital Gains Tax Increase Next Year: Should You Sell Now?
Photo courtesy mytaxburden.org