Details of Tax Cut Extension, Stimulus Package

The compromise tax and stimulus bill negotiated by President Obama and Senate Republicans and signed into law in December in the end had relatively little opposition.

The compromise tax and stimulus bill negotiated by President Obama and Senate Republicans and signed into law in December in the end had relatively little opposition. In the Senate, the vote was 81-19; in the House it was 277-148. The new law carries a price tag estimated at $858 billion over ten years. Among other things it extends tax cuts first approved in 2001 and 2003 through 2012, extend unemployment benefits for 13 months, impose a payroll tax holiday, and reduce a scheduled increase in the maximum estate tax rate and exemption from that tax.

It also will extend for one year the $0.45 per gallon ethanol blending credit and the $0.54 per gallon ethanol import tariff for an additional year –– to Dec. 31, 2011 –– and extend, retroactively, a tax credit for biodiesel for two years, from Dec. 31, 2009 to Dec. 31, 2011.

These provisions may prove to be a problem for the United States. The Brazilian sugarcane industry association (UNICA) says it will urge the Brazilian government to initiate dispute settlements proceedings at the WTO, claiming the corn ethanol subsidies and trade barriers on ethanol imports are not legal under the trade obligations of the US.

Major Items in the Tax, Stimulus Package (HR 4835)  

(all estimated costs are for a 10-year period)

Tax cut extension: A two-year extension of the expiring 2001 and 2003 tax cuts for taxpayers at all income levels, at an estimated cost of $407.6 billion — more than 47 percent of the total cost of the measure.

Capital gains and dividends: An extension for two years of the reduced 15 percent maximum tax rate for capital gains and dividends, as well as the 0 percent rate for those in the lowest two tax brackets. (estimated cost: $53.2 billion)

Child tax credit: Extends through 2012 the maximum child tax credit of $1,000 as well as provisions that expand eligibility for the refundable credit. (Estimated cost: $91.4 billion)

"Marriage penalty" relief: Extends for two years the size of the 15 percent tax bracket and the standard deduction for married couples filing a joint tax return intended to prevent the "marriage penalty" that led some joint filers to pay more than they would as unmarried individuals filing separately. (Estimated cost: $17.9 billion)

EITC: Extends through 2012 the rules that simplified and expanded eligibility for the Earned Income Tax Credit (and increases the income range at which the credit phases out for married couples. (Estimated cost: $15.7 billion)

Payroll tax reduction: Temporarily reduces the payroll tax by two percentage points for 2011. For one year, employees would pay 4.2 percent, instead of 6.2 percent, on wages up to $106,800, and self-employed individuals would pay 10.4 percent, instead of 12.4 percent, on self-employment income up to the threshold. The measure stipulates that the rate reduction would not be taken into account in determining the self-employment tax deduction allowed for determining the amount of the net earnings from self-employment for the taxable year — keeping the deduction for 2011 at 7.65 percent of self-employment income. (Estimated cost: $111.7 billion)

Unemployment insurance benefits: A 13-month extension, through Jan. 3, 2012, of expanded unemployment insurance benefits for laid-off workers and 100 percent federal funding to help state programs cover the costs of the additional unemployment benefits. The unemployment benefits, which provide up to 99 weeks of assistance in some states, expired on November 30, and the measure would make the benefits retroactive to that date. (Estimated cost: $56.5 billion)

Estate tax: A two-year estate tax with a $5 million per person ($10 million per couple) exemption (indexed for inflation) and a 35 percent rate beyond that. (Estimated cost: $68.1 billion) 

Ethanol: A one-year extension of the ethanol blender credit at 45 cents (at a cost of $4.9 billion), and the 54 cents import tariff. In addition, the bill extends for one year the 10-cent a gallon small-producer ethanol credit.

Biodiesel: The biodiesel tax credit would be made retroactive to Jan. 1, 2010, and extended through the end of 2011, at a cost of $2 billion over 10 years. The bill extends the $1.00 per gallon production tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon. The bill also extends through 2011 the $1.00 per gallon production tax credit for diesel fuel created from biomass.

Liquefied natural gas: The package resurrects for one year a 50 cents per gallon tax credit for companies which use liquefied natural gas, liquefied coal and other alternative fuels, excluding ethanol, methanol and so-called "black liquor" produced from paper manufacturing.

Grant in lieu of tax credit for wind and solar projects: An extension for an additional year, through 2011, of a program that authorizes the Treasury Department to provide grants, in lieu of tax credits, for specified energy property that is part of a qualified renewable electricity production facility or otherwise eligible for an energy credit (Estimated cost: $3 billion)

AMT: A two-year "patch" to prevent the alternative minimum tax from affecting 25 million taxpayers. For 2010, the measure sets the exemption amounts (i.e., the income not subject to taxes under the AMT) at $47,450 for individuals, and $72,450 for couples filing jointly. It increases the exemption amounts for 2011 to $48,450 and $74,450, respectively. It allows various nonrefundable personal credits to be claimed against the AMT in both years. (Estimated cost: $136.7 billion)

Expensing: Allows businesses to expense 100 percent of the cost of qualified property placed in service after Sept. 8, 2010, and before Jan. 1, 2012. It provides for a 50 percent first-year additional depreciation deduction for qualified property placed in service in 2012. (Estimated cost: $21.8 billion) 

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