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What the president's budget means for your taxes

Obama wants to retain or expand many tax credits, reinstate estate tax.

By Kay Bell Feb 2, 2010 12:31PM

The president released his fiscal year 2011 budget Monday. As expected, the main focus has been on the immensity of the numbers.

 

If Obama gets everything he put in the 192-page document, it will cost us $3.8 trillion.

 

Don't worry. He won't get all his budget wishes. But it's still fun to look at some of the key tax provisions. Who knows, a couple might make it into law.

 

Let's start with Obama's signature tax break, the Making Work Pay credit. The prez wants to extend that through 2011, as well as give retirees another $250 each in 2010.

 

Last year's American Recovery and Reinvestment Act, which created the Making Work Pay break, also expanded the Earned Income Tax Credit (EITC) for folks with three or more dependent children. Obama would like that change to be permanent.

 

The prez would like to expand the child-care tax credit, increasing the earnings threshold so that more couples could qualify for at least part of the credit. 

 

He would try to get more lower-income workers to save for retirement by expanding the expanding the Saver's Tax Credit. He also wants companies that don't provide employee retirement savings plans to offer automatic IRAs.

 

On the education front, the American Opportunity Tax Credit would permanently replace the Hope Credit.

 

As for his predecessor's tax cuts, set to expire at the end of this year, Obama would let that happen for those provisions that apply to taxpayers with incomes of $250,000 or more.

 

The top income tax rates would go from 39.6 percent (from 35 percent now) and the next one down to 36 percent (from 33 percent). The lower brackets would remain as they now exist.

 

Capital gains on profits from long-term assets would remain at 0 percent and 15 percent for lower-income investors, but would return to the 20 percent (instead of the current 15 percent) for wealthier taxpayers.

 

The estate tax would be reinstated at 2009 levels.

 

Itemized deductions would be limited for wealthier taxpayers.

 

If you want more, check out the budget and the accompanying Treasury Green Book.

 

Official hearings begin: And check out the Ways and Means Committee on Wednesday. The tax-writing panel is spending the day dissecting the budget.

 

The fun starts at 10 a.m. with testimony from Treasury Secretary Timothy Geithner. In the afternoon, Peter R. Orszag, Director of the Office of Management and Budget, will tell the Representatives what he thinks about the budget.

 

Those hearings will give us some idea what proposals have captured lawmakers' fancy.

 

Just how much of the prez's proposals will make it into law is hard to say. Given the polarization of the political parties on Capitol Hill (and across the nation), any changes will be difficult.

 

But some, particularly those related to education and child benefits, likely will get some traction in this mid-term election year.

 

Related reading from Don’t Mess With Taxes:

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