WASHINGTON — Sen. Thad Cochran (R-Miss.) is supporting legislation to preserve individual income tax rates at their current levels rather than allowing those rates to increase at the end of the year.
Cochran is cosponsoring the Tax Hike Prevention Act of 2010, a broad tax policy bill aimed at extending all of the individual income tax relief approved by Congress in 2001 and 2003. Those lower tax rates are set to expire if Congress does not act before the end of the year.
The measure (S.3773) was introduced Monday by Senate Republican Leader Mitch McConnell and Sen. Charles Grassley, ranking Republican on the Senate Finance Committee.
Cochran said the Tax Hike Prevention Act counters recent Democratic proposals that would increase tax rates for some individuals and businesses, raise capital gains and dividends taxes, extend the Alternative Minimum Tax and raise the federal Estate Tax, among other tax proposals.
The following is a summary of primary provisions in the Tax Hike Prevention Act:
• Individual Income Tax Rates – Preserves all current individual income tax brackets rather than following President Obama’s plan to raise the highest tax bracket up to 39.6 percent.
• Personal Exemption Phase-out (PEP) and Pease Limitation – Eliminates hidden tax increases collected through PEP and the Pease Limitation on itemized deductions. Though eliminated in recent years, President Obama plans to reintroduce them in 2011. These hidden taxes can act as penalties for having children, giving to charity and claiming a mortgage deduction.
• Alternative Minimum Tax (AMT) – Increases the individual AMT exemption limit so that approximately 22.1 million families will no longer have to pay higher AMT taxes. This tax relief is designed to assist families with children and taxpayers in high-tax states.
• Capital Gains and Dividends – Preserves the current 15 percent tax rate on capital gains and dividends for all Americans. Democratic proposals would allow capital gains tax rates to increase from 15 percent up to 20 percent and dividends tax rates to jump from 15 percent up to 39.6 percent in 2011 for certain filers. These tax increases would be in addition to a new 3.8 percent tax on investment income created by the new Health Care Reform law.
Estate Tax – Provides for a 35 percent estate tax rate with a $5-million per individual unified estate/gift exemption that is indexed for inflation with a stepped-up basis for inherited assets. Prior to 2010, the estate tax was 45 percent with a $3.5-million estate/gift exemption. Because the estate tax law expired last year, the current estate tax is zero. But without congressional action, the estate tax is set to increase to 55 percent in 2011, with only a $1-million estate/gift exemption.
• Marriage Penalty Relief – Continues marriage penalty tax relief. Prior to 2001, married couples were subjected to higher taxes simply because they were married. The 2001 tax relief eliminated some of the marriage penalty, and this bill continues that tax relief.
• Child Tax Credit – Continues the progressive child tax credit at $1,000 per child, rather than letting it fall to only $500 per child.