The Daily Item, Sunbury, PA

News

December 25, 2012

Your financial cliff Q & A

(Continued)

Q: What has changed in the talks over setting higher tax rates?

A: This month, Boehner offered to raise taxes for the first time, marking the threshold for higher rates at those earning more than $1 million. Obama’s latest proposal would increase levies on households making more than $400,000 compared with the $200,000 for individuals and $250,000 for couples that he has campaigned on since 2007.

Q: Will households making $250,000 to $400,000 see any tax increases?

A: It’s unclear. Republicans and Democrats have talked about raising revenue by limiting deductions many taxpayers take to reduce their taxable income. Households earning between $250,000 and $400,000 a year would face limits on their tax breaks under Obama’s latest budget offer even though they wouldn’t face higher income-tax rates.

Obama’s latest plan would begin phasing out personal exemptions and limiting itemized deductions at about $250,000 in annual income.

Boehner’s Plan B legislation would have repealed limits on itemized deductions and personal exemptions for top earners. Those limits would be reinstated Jan. 1 if Congress doesn’t act and the Bush tax cuts expire.

Q: What questions remain about the latest administration proposal?

A: Obama hasn’t released text outlining his current proposal.

The president’s latest offer would set the top tax rates on dividends and capital gains at 20 percent compared with the current 15 percent, according to a person familiar with the talks who requested anonymity to describe the private offer. Combined with tax increases from the 2010 health-care law scheduled to take effect in January, the top rates would be 23.8 percent. Obama had previously called for taxing dividends as ordinary income, which would increase the top rate to as much as 43.4 percent.

Obama has proposed reducing the exemption for the estate tax to 2009 levels of $3.5 million per individual and a top rate of 45 percent. Republicans would have extended the current estate-and-gift-tax limits at $5.12 million a person, indexed for inflation, with a 35 percent top rate.

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