WASHINGTON — Do you make more than $200,000 annually, or $250,000 between you and your spouse? Do you expect to inherit an estate worth more than $1 million next year?
Do you claim the American opportunity tax credit to help pay college costs? Or are you a low- or moderate-income worker who relies on the earned income tax credit or the child tax credit to supplement your household budget?
WASHINGTON — Here is a comparison of Democratic and Republican bills to extend expiring tax cuts through 2013 being debated by the Senate:
- Income tax rates: Republicans would extend the current rates of 10, 15, 25, 28, 33 and 35 percent for another year. Democrats would do the same, but not for individuals earning more than $200,000 annually and couples making $250,000. Those households, who now pay top rates of 33 or 35 percent, would instead pay up to 36 or 39.6 percent. Democrats would limit itemized deductions and phase out the personal exemption that can be claimed by those highest-earning households; Republicans would not.
- Estate tax: Republicans would continue today's top 35 percent rate on inherited estates, with an exemption for the first $5.12 million in the estate's value. Democrats would let that expire, leaving in its place a top rate of 55 percent and an exemption for the first $1 million.
- Dividends: Dividends are currently taxed at a top rate of 15 percent. When the tax cuts expire next year, they would be taxed like regular income, at whatever rate a taxpayer faces. Republicans would continue the top rate at 15 percent next year, Democrats at 20 percent.
- Capital gains: The top rate for capital gains is 15 percent, which would rise to 20 percent if the tax cuts expire. Republicans would impose a top rate of 15 percent next year, Democrats 20 percent.
- Income support programs: Democrats would continue the American opportunity tax credit of up to $2,500 for college costs. They would also renew language making the earned income tax credit more generous for large working families and some married working couples, and other language boosting the tax refunds some families get under the child tax credit. Republicans would eliminate all of those extensions.
- Business tax writeoffs: Under section 179 of the tax law, Democrats would let small businesses deduct 100 percent of their expenses for some equipment purchases next year up to $250,000. The deduction would phase out for companies earning at least $800,000. Republicans would raise the amount of purchases to a top of $500,000, with the deduction phasing out for companies making at least $2 million.
- Alternative minimum tax: Democrats would prevent millions of middle-class families from having to pay the alternative minimum tax for another year, shielding them from higher levies originally meant to prevent the rich from escaping taxes. Republicans would extend those protections for two years.
If your answer to the above questions is no — and that will be most of you — then you're probably in that wide swath of people who Democrats and Republicans agree should not face higher taxes in January, when a slew of tax cuts expire unless Congress acts.
If you're among the roughly 30 million households who answer yes, then either the Democratic or GOP tax bills that the Senate is expected to reject this week might mean paying more taxes.
Despite the high-wattage political theater over taxes dominating Congress these days, there's a lot of consensus between the two parties over what should happen in the short term. In a campaign season dominated by the limp economy — and with neither party eager to boost taxes on voters so close to the elections — Democrats and Republicans want tax cuts for most Americans to continue through 2013 while lawmakers try to reduce the federal debt and overhaul the tax code.
"The broad range of tax cuts set to expire are ones both parties want to continue. The debate is over a fairly narrow but very symbolic range of taxpayers," said Robert Bixby, executive director of the bipartisan Concord Coalition, which favors controlling budget shortfalls.
The differences were playing out Tuesday as the Senate debated a tax-cut bill by Senate Majority Leader Harry Reid, D-Nev.
Largely mirroring President Barack Obama's proposals, it has a 10-year price tag of $250 billion. It would continue the expiring tax cuts next year for everyone but individuals making $200,000 a year and couples earning $250,000, who would see their taxes rise. That would mean higher levies next year for 2.5 million households — just 2 percent of the 140.5 million returns the Internal Revenue Service receives, according to 2009 figures.
Waiting in the wings is a rival bill by Sen. Orrin Hatch, R-Utah, which has a 10-year cost of $405 billion. It would include high earners in the extended tax cuts next year, but omit some tax breaks Reid would extend for college costs, children and low-income workers. Combined, that would end tax breaks for 25 million households, according to Treasury Department figures provided by the White House.
House Republicans unveiled a tax bill Tuesday similar to Hatch's. Speaker John Boehner, R-Ohio, plans to push it to House passage next week. Boehner's bill doesn't stand a chance of passing in the Senate, nor does Reid's in the House.
With neither side showing much inclination to compromise, the White House released a report illustrating what a stalemate that results in all the tax cuts expiring in January would mean. It said there would be an average $1,600 tax boost for 114 million households earning under $250,000 for couples or $200,000 for individuals, and blamed the GOP for the brewing impasse.
"The only reason the middle-class tax cuts have not been extended is that Republicans in Congress continue to insist on cutting taxes once again for the wealthiest few," the report said.
Republicans said it was Democrats pushing the battle to the brink so they can accuse the GOP of coddling the rich.
"To them, this is more about messaging or passing the buck than it is about helping anybody or preventing an economic calamity at the end of this year" when the tax cuts lapse, Senate Minority Leader Mitch McConnell, R-Ky., said Tuesday.
The Senate planned to vote Wednesday on Reid's proposal, and a vote on Hatch's was possible as well. Neither will get the 60 votes needed to prevail, but the measures highlight each party's campaign-season priorities.
The main dispute is over denying tax cuts for the well to do, which Obama and Democrats want to do under their banner of tax fairness. Republicans say such increases would hurt job creation.
Following Obama's lead, Reid's bill would extend today's income tax rates through 2013 for everyone but the highest earners, whose top rates would grow from today's 33 and 35 percent up to 36 and 39.6 percent.
Reid would limit the itemized deductions and phase out the personal exemption those high earners could claim. And he would impose a top capital gains tax rate on them of 20 percent, up from today's 15 percent top rate.
Reid would also allow the expiration of today's estate tax rules, which impose a maximum 35 percent tax rate and exempt the first $5.12 million in an inherited estate's value. Instead, the top rate would rise next year to 55 percent, with only the first $1 million exempted.
Owners of 46,700 estates with values between $1 million and $5 million are projected to die next year, according to Congress' nonpartisan Joint Committee on Taxation, potentially exposing their heirs to the higher taxes proposed by Democrats.
Hatch's competing plan would continue the tax cuts for all, including high earners, whose income and capital gains tax rates would not rise and their deductions and personal exemptions would stay intact. Hatch would also retain today's lower rates and higher exemptions for inheritances, which the joint committee estimated would save 3,600 estates next year from higher taxes.
Hatch's bill ignores Reid proposals for one-year extensions of tax breaks that Obama's 2009 stimulus law created in three existing programs. Republicans say the provisions were temporary prods for the economy, but Democrats say they were always meant to be permanent.
Reid's bill would extend:
- The American opportunity tax credit, a maximum $2,500 credit per student for college expenses that phases out completely for individuals earning $90,000 and couples making $180,000. Ending it would cost 11 million families an average tax break of $1,100, Treasury Department data shows.
- Language making the earned income tax credit slightly more generous for working families with three children and for some married couples. The program provides tax credits of up to $5,891 for low-earning workers, defraying their tax bill and providing a government check to people who owe no taxes. Halting the improved benefits for larger families and couples would force an average $500 tax boost on 6 million households, Treasury figures show.
- A provision increasing the size of tax refunds that some families receive under the Child Tax Credit. Letting that language lapse would hit 12 million households with average tax increases of $800, according to Treasury. The child tax credit is worth up to $1,000 per child, which both parties favor continuing.
The Treasury says that because some families receive benefits from more than one of the provisions Reid would extend, a total of 25 million households would be affected if the language expired.