What tax deal could mean for you
December 7th, 2010
12:07 PM ET

What tax deal could mean for you

The White House is working to get Democrats to support a last-minute deal on taxes that President Barack Obama hammered out with Republican leaders.

The compromise would extend the Bush-era tax cuts for two more years, keeping income tax rates at their current levels for everyone, as Republicans insisted. Obama and other Democrats wanted tax rates to rise only for individuals earning more than $200,000 a year and for families making $250,000 or more a year.

If the deal goes through, here's what it will mean for you:

Payroll taxes – Wage earners will have extra money in their paychecks with the lowering of the payroll tax from 6.2% to 4.2%. Someone earning $50,000 a year would pay $1,000 less in Social Security contributions next year. Someone earning $100,000 would pay $2,000 less. The payroll tax rate would go back up to 6.2% in 2012.

Income taxes - Not much to see here - at least in terms of your wallet. The compromise would extend the Bush-era tax cuts for two more years, which basically means the income tax rates will remain exactly the same for the next two years at their current levels for everyone.

White House fact sheet on agreement

Individual tax breaks - Low- and middle-income tax filers will see an increased value in credits for two years if they file for an earned income tax credit, the child credit or a revamped tax credit for college costs.

Unemployment benefits - The package would leave in place for 13 months the option to file for extended federal unemployment benefits. In some states, especially where job loss is extremely high, it can be up to 99 weeks.

Estate taxes - The estate tax exemption, which lapsed this year, would be would be set at $5 million and the top rate would be set at 35%.

CNNMoney.com: Tax cut deal and surprise stimulus - the cost

If a deal can't be reached:

Taxes will go up for everyone, since the current rates set under President George W. Bush expire automatically at the end of 2010. Democrats control both houses of Congress, but the Republicans will take control of the House of Representatives in January, and the Democratic majority in the Senate will be smaller than it is now.

The estate tax would return in 2011 with a $1 million exemption level and a top rate of 55%.

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Filed under: Finance • Taxes
soundoff (596 Responses)
  1. Eric of Reseda

    The Republicans are bankrupting this country. The national debt was at it's lowest under Carter. Then Reagan initiated a unprecedented and MASSIVE increase in the deficit. He said it was his greatest regret...Then Bush 1 followed suit, with yet another MASSIVE increase. Clinton, of course, stopped the nonsense, balanced the budget, even left a little surplus for Bush 2, who then followed Reagan and Bush 1 with another MASSIVE increase in the deficit. (This is factual, GOP'ers. So when your leaders claim it's the Dems piling debt onto your kids, it's a bold-faced lie to get your vote). His $600 tax refund in term one was a blatant buying of the vote.

    Here's my beef: The Republicans are FAR better at the propaganda game. After all, how could they convince so many people to vote them into power when their actions in the last 40 years have SO severely hurt hard-working Middle-Class Americans, while the rich – whom they TRULY represent – just keep getting richer...

    December 7, 2010 at 2:05 pm | Report abuse |
    • John W

      NEVER quote carter to me. The interest rate on my student loans was 18% during his administration. And, oh yeah, they removed the tax deduction for loans. I dont remember 100k with 18% interest fondly at all

      December 7, 2010 at 2:14 pm | Report abuse |
    • TCP

      21% APR on a thirty year note anyone? If THAT'S your idea of success you need therapy!

      December 7, 2010 at 3:26 pm | Report abuse |
    • Rhett

      You are right eric these guys are idiots

      December 7, 2010 at 3:40 pm | Report abuse |
    • TCP

      That's always a good response, Rhett...

      December 7, 2010 at 3:43 pm | Report abuse |
    • JustReal

      If we kept the 18% on a loan note with 20% down like under Carter, we would have never seen the mess of the last 2 years.. but hey, lets artificially drop rates by running the money presses, and create fake financial instruments, lovely piper's music. Some day soon, someone will have to pay the piper, and guess what? the broke can't pay...

      December 7, 2010 at 4:43 pm | Report abuse |
  2. Charlie

    The rich in this country are getting richer at the expense of the poor and middle class. Nobody is raising their taxes,
    'We THE People' just want them to pay the tax rate they are supposed to be paying. The rich are investing those tax breaks in other countries, not here in the US. That's why the economy's in Communist China and India are not suffering. That's why the stock market in this country isn't doing as bad as the rest of our country's economy. The rich are getting paid regardless. Of course the Republican's have come up with another angle. Now some republicans want to pass legislation that says' If your not a property owner you cannot vote'. I guess that's one way to get rid of dissent against republican want's. You know, completly silence the voices of the poor and middle class.

    December 7, 2010 at 2:06 pm | Report abuse |
  3. Jaxin

    My favorite little story to explain things to the uneducated:

    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…

    If they paid their bill the way we pay our taxes, it would go something like this…

    The first four men (the poorest) would pay nothing.

    The fifth would pay $1.

    The sixth would pay $3.

    The seventh would pay $7..

    The eighth would pay $12.

    The ninth would pay $18.

    The tenth man (the richest) would pay $59.

    So, that’s what they decided to do..

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

    They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

    And so the fifth man, like the first four, now paid nothing (100% saving).

    The sixth now paid $2 instead of $3 (33% saving).

    The seventh now paid $5 instead of $7 (28% saving).

    The eighth now paid $9 instead of $12 (25% saving).

    The ninth now paid $14 instead of $18 (22% saving).

    The tenth now paid $49 instead of $59 (16% saving).

    Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

    “I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

    “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

    December 7, 2010 at 2:09 pm | Report abuse |
    • Charlie

      They are already drinking oversees. All that tax break money is going into China and India. WHat exactly is your point?

      December 7, 2010 at 2:16 pm | Report abuse |
    • John W

      Well said!

      December 7, 2010 at 2:16 pm | Report abuse |
    • sane

      Your example is moronic. Change the beer to water and the setting to the desert. Assuming the guy paying $1 doesn't have the $1, do you let him die of thirst or do you make the guy that's paying $59 pay even more because he has $1 million?

      December 7, 2010 at 2:18 pm | Report abuse |
    • Charlie

      They are already drinking oversees. All that tax break money is going into China and India. WHat exactly is your point? Please tell me why the stock market is not reflecting what the rest of the economy is doing.

      December 7, 2010 at 2:19 pm | Report abuse |
    • mgc florida

      they already do, how many of them are hiding money over seas, think about it.

      December 7, 2010 at 2:31 pm | Report abuse |
    • Kym

      I love your story! I do taxes for a living. People have no idea the percentage upper class pay on their salaries. The sad part is that people just assume if somebody makes $250k that they have so much. What they do not realize is if they make $250k their mortgage payment is more, car payment is more, daycare is more, expenses for personal and business expenses are more. At the end of the day many times I see lower income taking home more from a $30k job then somebody who has a $250k job. My husband and I are not even close to $250k actually we are not even close to $100k a year, however I look at this things every year and it has made me realize how the so called rich $250-350 are not so rich most times they are struggling to just get by...Futhermore these individuals do not qualify for majority of the tax deductions that we get. Most Schedule A deductions start being limited at $150k and other credits and deductions they can't even qualify for since they make to much. Example: daycare credit, child credit...so forth. I think people need to get a course in our tax laws before they speak about how bad they have it and how good the upper middle class have it.

      December 7, 2010 at 2:33 pm | Report abuse |
    • YBM

      A very good and simple explanation that even a moron can understand, but I am afraid it will ring on deaf ears. The liberals will find some way to discount/dismiss it. They don't want to believe that people who work hard and improve their human life value deserve what they earn.

      December 7, 2010 at 2:34 pm | Report abuse |
    • Fricsaid

      @kym.....I noticed how you conveniently failed to mention your standard of living.....or did you? You most likely pay a higher mortgage because you choose to live in a nicer home than most. Chances are you are paying a higher car payment because you drive a luxury car to where most do not. I don't think it's quite fair to make your comparison when you have not factored in your standard of living. I make 40k a year. I have a home that I'm proud of. My car is paid off because I've drove the same car for over 4 years. Yeah, I live from paycheck to paycheck, but I'm happy. I used to be a business owner and wouldn't go back to it for nothing. I didn't like the headaches you mention.

      December 7, 2010 at 2:56 pm | Report abuse |
    • Daver

      One of the most played-out and stupid examples of how the tax system works (or doesn't)...

      December 7, 2010 at 3:11 pm | Report abuse |
    • Daver

      Because the tenth man wasn't there, the $100 tab became $27. The other nine guys were drinking 3 $1 PBR's apiece. The tenth guy would normally order 10-12 expensive micro-brews per night. If you know something different, show me the receipt 😉

      December 7, 2010 at 3:25 pm | Report abuse |
    • Melanie

      I guess bartenders shouldn't be meting out tax benefits. Maybe I'm just simple, but I would use the same percentage of the bill to calculate the savings. No more, no less.

      December 7, 2010 at 3:58 pm | Report abuse |
    • QAtl

      The only problem with your story ( which is very good by the way ) it that it doesn't offer any analysis of the effects of continuing deficits. In other words the bar owner is *not* cutting the price of the 10 beers purchased by $20.00. What he is really doing is borrowing $20.00 from China and cutting the price of his beers by $20.00 accordingly. Unless in your example his cost structure decreases by $20.00 and he decides to pass on his cost savings to his patrons 100%. You didn't say so just for the sake of argument let's say his cost structure stays the same. The problem is that the $20.00 has to be paid back to China plus interest and eventually those 10 patrons are going to have to pony up to pay it. So in effect the tax cut is financed with borrowed money. Herein lies our dilema as a country. If we are going to have continued tax cuts financed with borrowed money then that's a recipe for long term economic decline. If they are financed through GDP growth then no problem. Or through spending cuts no problem. Neither party Republican or Democrat has really leveled with the American people and explained the type of long term shared sacrifice necessary to bring our budget into balance. That type of political courage I'm seeing from just a few individuals. Rand Paul ( who I generally don't agree much with ) at least is honest about the spending cuts needed. A few other standouts ( both Republican and Democrat ) have also shown the courage to be honest about this.

      As an Economic professor I would give you a solid A on your analogy ( I realise that you're not a PhD candidate and probably don't care what grade I would give you but good work nonetheless ). But I would caution you that you can't explain one part of an equation and convienently leave the other variables out. At a bare mininum mention them even if you're holding them at a constant. I recall back in the 90's a bunch of analysts told everyone to buy Russian currency. They showed wonderful analogies and mathematical models showing how it was impossible to lose money. And of course many people bought into the hype. When the Russian currency collapsed many wondered how they could lose money on such a sure thing and asked the analysts why. They responded that the factors that caused the collapse weren't reflected in their model. They just "assumed" they would never happen. We've had enough garbage equations the last 20 years.

      December 7, 2010 at 4:21 pm | Report abuse |
    • Glug Glug Glug

      wahhhh Kym, they're mortgage is more....maybe they shouldnt buy such a big status house then

      December 7, 2010 at 4:26 pm | Report abuse |
  4. Adam

    I'm all for a 2% payroll tax break as I'd appreciate the extra take home pay but I don't understand how all I ever hear about social security is that its going broke yet here they propose cutting the amount of revenue the system takes in for 2011. Can someone explain?

    December 7, 2010 at 2:17 pm | Report abuse |
    • Karen

      This was my first thought as well. I'm more than happy to take home an addition 2% next year. However, being in my early 40's, I am continually reminded that I may never see a dime of the SS I've paid over the last quarter-century. How does reducing SS payments NOT cause further damage to that system?

      December 7, 2010 at 2:35 pm | Report abuse |
  5. An honest man

    why not just increase the unemployment pay deduction to pay for the unemployment to offset the payroll tax?

    December 7, 2010 at 2:19 pm | Report abuse |
  6. Paul

    I don't think he had much choice here. The economy is hardly growling and despite the stimulus package employment is not picking up. I believe many more Americans will be out of work for a prolonged period and the extension may help keep these formerly, hardworking citizens off the street.
    The deficit is so large that to be honest, the tax increase will do little to improve finances and may actually stall what little growth there is. No growth, no jobs.
    As far as the top earners not being taxed more, well if that is the cost of possibly extending benefits for the unemployed then at this stage it is probably worth it.
    Some point in the next few years the US will have to start repaying its debt, but that time is not now.

    December 7, 2010 at 2:22 pm | Report abuse |
  7. Al

    I voted for Obama, he inspired me with his wonderful speeches, however, my wife has a neutered Yorkie who has more balls than our president. Someone earlier said everyone in America could become millionaires. If there were any truth in that statement, why has that never happened? When i was 20 years old, everyone that wanted to work, could work, that was Michigan 60 years ago. I have two grand-daughters, both graduates of Penn state, neither has a job, they do not live in Detroit, they live in Pennsylvania. Everyone in America should start asking their older Congressmen why there are no jobs, where were they when the jobs were going overseas, Those same OLDER congressmen have been on the receiving end of $$$$$ which was doled out to them so that they, our lawmakers might make it easier and far more profitable for whatever business to conduct their business away from America. I suspect by now that every citizen in this country realizes that our politicians, for the most part are MULTI-MILLIONAIRES. They sure as hell did not become that way on their salaries. Every congressman in America that is over the ago of 50 should be hung by their balls on the white house lawn..

    December 7, 2010 at 2:27 pm | Report abuse |
    • Foxglove

      Until we deal with fair trade the situation will not improve. All these companies/corporations are sending their work to foreign countries where they can get cheap labor. No Republican or Democrat will really play hard ball on this issue.

      December 7, 2010 at 2:33 pm | Report abuse |
    • mgc florida

      There are no jobs because during the 8 years of bush he drove the economy off a cliff. What confounds me is how everyone expected obama to solve this in two years??? are you kidding me, the worst recession since the depression, folks put your brains back in your heads and think!!

      December 7, 2010 at 2:40 pm | Report abuse |
    • Karenjay

      I love these type of protectionist solutions-they were tried during the Depression and hurt more than helped. I ask this gentileman–How do you propose to keep companies from going overseas? You cannot force a person or company to stay in the U.S. As we have a global economy, you cannot even demand that they sale their product to the U.S. In fact you cannot even demand a CEO to keep his US citizenship. Therefore, the only way to keep companies in the U.S. is to entice them to do business here. We do that by such things as lowering taxes and cheap energy–(or get rid of miniimum wages, etc.). I love it when someone screams for certain job rights such as health care, wages, and supports taxing the wealthy on one hand and the cries unfair when those same companies pick up and leave to do business elsewhere. All I have to say is "well, duh."

      December 7, 2010 at 2:57 pm | Report abuse |
    • Dragon

      You need to put this in perspective, It took Bush 8 Years to create the mess and you want Obama to fix it in 18 Months Right..?

      They call this a Recession? NO, this is a Depression.

      Accep it ...!

      December 7, 2010 at 2:59 pm | Report abuse |
    • TCP

      Everyone who wants to work CAN work! It is a choice as is everything else to NOT work. And ANYONE can still make a million in this great country. They simply CHOOSE not to!

      December 7, 2010 at 3:35 pm | Report abuse |
    • 99'er

      Over 50!!! You HAD to pick that number! Remember that THEY can retire with FULL PAY at the age of 50.
      I think if we could change that, and make them obey the same laws as ORDINARY CITIZENS of our country, it would be just like doing what you said to them! Think what that would do to change a lot of things.

      December 7, 2010 at 3:44 pm | Report abuse |
  8. Long Time Tax Preparer

    It is a moot point, since the tax breaks are being extended for everyone. But just a point of information to clear an apparent misconception among some readers about how income taxes are calculated. Taxpayers above the "rich" threshhold (say $250k) would have their tax reductions for the first $250k phased out in some ratio (maybe dollar for dollar, 2 for 1, or whatever). So by the time they hit a certain amount above the threshhold, they truly would be paying much higher taxes. This is not necessarily a bad thing, and maybe not a good thing (depends on your perspective). But that is the way it would be calculated.

    December 7, 2010 at 2:27 pm | Report abuse |
  9. Mike

    Can a RICH person get rich without any gov't, public infrastructure, public research (university), military, national security, medical health care, public servants, teachers, and everything else that is needed to create a 'fair' capitalistic playground?

    The RICH do not get rich on their own. We are all interdependent. Isn't it funny that it was the middle class the bailed out the rich during this recession?

    December 7, 2010 at 2:28 pm | Report abuse |
    • AnnRox

      Hm, aren't the public services and infrastructure you mentioned available to all? Could it be that "the Rich" were just better at seizing the opportunities offered to everyone?

      December 7, 2010 at 3:20 pm | Report abuse |
  10. JT

    I am not fan of taxes. But even Warren Buffett said there needs to be higher taxes on the rich. If a smaller class continues to get most of the inclome, then this will eventually lead to even more control, fewer people making decisions. Now, if they want to raise taxes to pay down debt, I am all for it. But, if they are just going to keep on spending, then I am not a supporter.

    December 7, 2010 at 2:28 pm | Report abuse |
  11. Foxglove

    The rich are already drinking in foreign countries(foreign investment). They are escaping the tax laws left and right and the IRS does nothing about it.

    December 7, 2010 at 2:28 pm | Report abuse |
  12. Sher

    Why isn't anyone upset over the fact that the government is lowering the payroll tax by 2%? This tax goes to pay social security benefits and if this money isn't being generated from payroll taxes, where is it coming from? Will we borrow it from the Chinese?

    Democrats and Republicans are spending this country into the ground and nothing is being done about it.
    Very Scary!

    December 7, 2010 at 2:30 pm | Report abuse |
  13. YBM

    The debt has 'skyrocketed' because Obama and his ultra liberal cronies pushed for unneeded/unsuccessful stimulus and a fiasco of a healthcare bill with no way to pay for them. You liberal coolaide drinkers need to do a little thinking for yourselves instead of standing around with your hands out. Liberals are the worst of the "elitists." Their plan is to keep the most people possible with their hands out and dependent on them, so they can stay in power. The elitist belief is the average american is not smart enough to know what is good for them and the government has to take care of them and tell them everything to do.

    December 7, 2010 at 2:30 pm | Report abuse |
  14. Joe

    The Republicans have no morals, they could care less about the hardship of everyday citizens. Their love of money is their GOD. Our President has not been able to reach out to the American people beacuse he speaks with a very even low keyed tone, while his opponets scream to the top of their lungs and have temper tantrums like little children. The Republican are the reason why we are in this mess to begin with. The tea party are a bunch of right wing extremist, and the democrates act like they are afraid to stand-up for what they believe in because they are afraid to take on a
    challenge. We are falling futher behind the rest of the world economically, and the band played on. We are in a ball of confusion.

    December 7, 2010 at 2:32 pm | Report abuse |
    • TCP

      Guess what, sport? I AM an everyday citizen. I simply know how to manage my own affairs and the affairs of anyone I choose to support. I don't need the government to do it for me...

      December 7, 2010 at 3:39 pm | Report abuse |
  15. tommyh

    The could tax the rich (more than $500K) and use the money to give tax breaks on things that grow jobs.

    December 7, 2010 at 2:33 pm | Report abuse |
    • TCP

      They already tax those earning that much money! They probably pay more than you make in a year. Where would it stop? Why don't we just tax everyone to the point where everyone is netting the exact same dollar amount per year? Would that work for you? Uh-oh, that might mean you'd have to take a paycut...

      December 7, 2010 at 3:40 pm | Report abuse |
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