FACTBOX-Impact of Bush era tax rate expiration

Dec 1 (BestGrowthStock) – Obama administration officials and top
U.S. lawmakers are debating the fate of Bush-era tax rates that
are scheduled to expire at year’s end.

Until recently, Obama has argued fervently that the country
could not afford extending lower tax rates enacted under former
President George W. Bush for individual income above $200,000,
but he recently signaled a willingness to compromise to prevent
tax cuts from expiring on all taxpayers.

Republicans want to also include renewal of low tax rates
for individual income above $200,000 a year, benefiting about 3
percent of taxpayers, including some small business.

One area of debate involves the definition of “middle class”
and the impact of tax rates on small businesses. Below are some
basic facts about who would be impacted under various scenarios.

HOW WOULD THE RATES CHANGE IF THEY ALL EXPIRE?

If Congress does nothing by Dec. 31, and allows all the
individual income tax cuts to expire at the end of the year as
scheduled, tax rates will likely rise in January for all income
brackets.

Current income tax rates are 10 percent, 15 percent, 25
percent, 28 percent, 33 percent and 35 percent.

Under current law, the 10 percent and 25 percent rates are
dropped in January. Tax rates move to 15 percent, 28 percent,
31 percent, 36 percent and 39.6 percent.

The 33 percent tax rate would jump to 36 percent and the 35
percent rate would jump to 39.9 percent. These are the rates
that would go up under the Obama administration proposal.

INCOME GROUP MAKE-UP

Of about 170 million income taxpayers, just under 1 million
people made enough taxable income — above $373,650 — to fit
in the top 35 percent marginal tax bracket, according to the
congressional Joint Committee on Taxation.

Note that these figures are for federal income taxes only —
not state and local taxes, or payroll taxes, which fund Social
Security and Medicare.

Also note that income is taxed marginally. So a person
making $400,000 pays the highest rate for only the amount above
the $373,650 threshold.

Here are how the other groups break down for 2010:

* Roughly 1.6 million individuals have taxable income above
$171,850, and pay a 33 percent marginal rate.

* 4.7 million have a taxable income above $82,400 and pay a
28 percent rate.

* 24.8 million have income above $34,000 and pay the 25
percent rate.

* 50 million have income above $8,375 and pay a 15 percent
marginal rate.

* 27.1 million earn up to $8,375 and pay a 10 percent
rate.

* 62.7 million pay no taxes, either because they don’t earn
income or get tax credits such as the earned income tax credit
for working families.

WHAT IS A SMALL BUSINESS?

Small businesses are an engine of job growth in the United
States and evoke a warm image of hard-working folks, sometimes
“mom-and-pop entrepreneurs,” laboring to keep the American dream
alive. For some, that’s an apt description. For others, small
businesses can be heavy-hitting law firms and rich financiers.

Republicans use the image most frequently, arguing that
letting taxes rise on top income groups will kill a key job
creator.

Republicans cite a government statistic that half of all
small business income will be hit if taxes rise on individuals
making more than $200,000 a year, the plan backed by President
Barack Obama and most of his fellow Democrats.

Democrats shoot back with their own take on the data — that
just 3 percent of small business owners will be affected by the
Democrats’ plan.

Neither side generally refutes either of those statistics,
which come from the congressional joint tax committee. That
panel also estimates about 750,000 taxpayers with business income
are in the upper income groups.

Where they disagree is over the impact. JCT notes that
small businesses are classified by tax structure — not
revenue.

“These figures for net positive business income do not
imply that all of the income is from entities that might be
considered ‘small’,” the committee said in the oft-cited
report.

For example, in 2005, 12,862 so-called “S-corporations” and
6,658 partnerships had annual receipts of more than $50 million
each, according to the committee.

Big law firms often organize as partnerships and businesses
including hedge firms file as S-corporations.

DIVIDENDS, CAPITAL GAINS

Obama has proposed a top tax rate of 20 percent for
dividends and capital gains, which are now taxed at a top rate
of 15 percent. Republicans want to keep those rates at 15
percent.

The healthcare overhaul would bring those top tax rates to
23.8 percent in 2013 to help pay for expanded medical
insurance.

(Reporting by Kim Dixon in Washington; Editing by Cynthia
Osterman)

FACTBOX-Impact of Bush era tax rate expiration