Breaking down H.R 4853, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
NETWORK supports legislation surrounding the recent tax cut compromise between President Obama and the Republican leadership, but will remain vigilant during the next two years in advocating for a more equitable tax structure that will ensure a strong safety net far into the future. The tax bill passed the Senate on December 15, 2010. The House also approved it late in the night of the following day (277 to 148, with 112 Democrats and 36 Republicans voting "no"). It was then sent to President Obama for his signature.
What’s in the compromise package?
Below is a breakdown of just a few of the pieces included in H.R 4853, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. These pieces are critical to understanding the effects of these tax provisions on the economically marginalized and why the package must be passed before Congress adjourns. The Center on Budget and Policy Priorities  estimates that the Tax Relief Package will keep 2.4 million Americans above the federal poverty line, minimize the poverty of 19.4 million Americans, including 7.2 million children, and will allow the extension of federal unemployment benefits that will aid 7 million unemployed workers. The total package is estimated to cost $800 billion and will serve as both a job creation tool and safety net for Americans, specifically those experiencing long-term unemployment
Temporary Extension of Tax Relief
- Child Tax Credit (CTC)
Extends the current CTC law through 2012. The CTC allows filers to claim this credit for each child under age 17 to reduce their federal income tax. The 2001 tax cuts raised the CTC from $500 to $1000 and the American Recovery and Reinvestment Act of 2009 lowered the earnings floor for the refundable credits from $10,000 to $3000 - providing greater support to low income families. The Child Tax Credit serves as a critical tool to keep 1.3 million Americans above the poverty line.
- Marriage Penalty Relief and Earned Income Tax Credit (EITC)
Extends Marriage Penalty Relief and the Earned Income Tax Credit through 2012. The earned income tax credit is estimated to keep an additional 300,000 people out of poverty in addition to aiding millions of people struggling above the poverty line in this difficult economy. The 2009 stimulus package increased the EITC to 45 percent of a family’s first $12,570 and extended a higher credit for families with three or more children, which is continued until 2012 under this compromise.
- Individual Income Tax Rate Reductions
Temporarily extends the 10 percent individual income tax bracket, created in 2001, through 2012.(The 2001 tax relief act lowered existing tax brackets and lowered the bottom tax bracket from 15 to 10 percent.)
Temporarily extends the 25, 28, 33, and 35 percent tax brackets through 2012. These rates were scheduled to expire in 2010 and would have returned to tax rates to 28, 31, 36 and 39.6 percent.
- Expanded Dependent Child Care Credit
The credit increases eligible child care expenses from $2,400 to $3,000 for one child and increases the credit for two or more children from $4,800 to $6,000.
- American Opportunity Tax Credit
Helps lower and middle-income households pay for college.
Note: The Center on Budget and Policy Priorities estimates that $129 billion of the tax relief package specifically benefits high income households and is exclusive to this package. Included in the $129 billion is the extended reduction in the top two marginal tax brackets along with the weakening of the 2009 estate tax laws.
Temporary Alternative Minimum Tax Relief
The Alternative Minimum Tax was never indexed for inflation and the two-year AMT patch increases the exemption amounts in 2010 to $47,450 for individuals and $72,450 for joint filers. In 2011, the exemption amount is $48,450 for individuals and $74,450 for those filing jointly. The AMT patch is effective for taxable years after December 31, 2009 through the end of 2011.
Temporary Estate and Gift Tax Relief
The current estate tax proposal gives individuals an exemption of $5 million per person and $10 million per couple. The proposal on the table allows a maximum tax rate of 35% for estate and gift taxes through 2012. This is an expansion of 2009 estate tax law which granted a $3.5 million exemption ($7 million for joint filing) with a maximum tax rate of 45 percent. Changes are still being made, and estate and gift tax relief remains a controversial issue. Keep checking NETWORK’s legislative  page for updated information.
Temporary Extension of Investment Incentives
Includes incentives to promote the clean energy industry, business tax relief such as research and development credits through 2011, and New Markets Tax Credits to promote business investment in low-income communities
Temporary Extension of Unemployment Insurance
Proposed reauthorization of federal unemployment insurance benefits through 2011. Congress allowed extended federal benefits to expire on November 30, 2010 and workers’ security, and their children’s wellbeing, stands in limbo when extended federal unemployment insurance are allowed to expire. Extended federal unemployment insurance benefits stands to assist 7 million workers through 2011 and provide unemployed workers and families with a greater sense of security and safety in this troubled economy.
Temporary Payroll Tax Deduction
Currently, employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 (self-employed individuals pay 12.4 percent). The current proposal decreases that tax by two percent in 2011. The social security tax deduction will not affect the solvency of Social Security funds as these will be repaid through the general treasury.
The reduction in the payroll tax is in essence replacing the “Making Work Pay” tax cut. The “Making Work Pay” tax cut phased out at $95,000, while the payroll tax holiday has no maximum level. According to the Center on Budget and Policy Priorities, the payroll tax holiday could keep 900,000 people out of poverty, but extending the “Making Work Pay” credit would have kept an additional 500,000 families out of poverty.
Projected cost (2011-2020) for The Tax Relief, Unemployment Insurance (UI) Reauthorization, and Jobs Creation Act
- Temporary Extension of Tax Relief - $407,640 billion
- Temporary Alternative Minimum Tax Relief - $136.68 billion
- Temporary Estate and Gift Tax Relief - $68.15 billion
- Temporary Extension of Investment Incentives -$21.83 billion
- Temporary Extension of Unemployment Insurance and Related Matters - $56.51 billion
- Temporary Payroll Tax Deduction - $111.65 billion
- Temporary Extension of Certain Expiring Provisions - $55.35 billion
Source: Joint Committee on Taxation