It is estimated that the top 5% of Americans by income now account for one-third of consumer spending at home. If their taxes had gone up; their current spending levels might have gone down. We’ll now get to see whether the theory works because the President announced on 12/06/2010 that he had agreed to a Deal to extend the Bush tax cuts for the rich for two years. He also added a few additional “goodies”.
Personal Tax Rates: Current rates extended for two-years for all taxpayers with a top rate of 35%.
Capital Gains: Current rates extended for two-years for all taxpayers with a top rate of 15% on long-term capital gains.
Dividends: Current rates extended for two-years for all taxpayers with a top rate of 15% on qualified dividends.
Social Security Tax: The employee 6.2% tax rate on the first $106,800 of wages in 2011 drops to 4.2%.
Alternative Minimum Tax: Current exemptions extended for two years for all taxpayers with a two-year “patch”.
Estate Tax: An exemption of $5 million per individual for two-years.
Gift Tax: Current rates extended for two-years for all taxpayers with a top rate of 35%.
Extenders: Transfers of IRA assets to charities by those over age 70½; a state and local sales-tax deduction for itemizers; the $1,000 child credit; an additional standard deduction for real-estate taxes; the higher-education tax credit; and a deduction for teachers’ expenses were extended for two-years.
Unemployment Insurance: Federal benefits extended at their current level for 13 months through 12/31/2011. Passage of the Deal mentioned above will allow both business and individual taxpayers to plan strategically for the next year. There’s no guarantee that the President can get his party to support the Deal; however, it seems likely it will either pass in December or early in 2011 when the newly-elected Republicans take control of the House.