Jul 16, 2012 11:55 AM by AP
WASHINGTON (AP) - The highest earning Americans would pay a top rate of 23.8 percent for capital gains and dividends next year under a $272 billion, one-year extension of tax cuts that Senate Democrats are circulating among themselves.
A draft of the proposal shows that Democrats would keep income tax rates where they currently are for families earning below $250,000 a year and individuals making less than $200,000, as President Barack Obama has proposed. Obama and Democrats would let the tax cuts enacted a decade ago on those earning more than that expire, leaving them facing a top income tax bracket of 39.6 percent.
The draft provides initial details of a bill that Democratic lawmakers have been describing in more general terms for months, and mostly follows Obama proposals. The measure is an embodiment of Obama's re-election theme that it is only fair for the wealthy to contribute to efforts to reduce federal deficits.
About 98 per of households earn under $250,000 yearly. Boosting taxes on those earning above that amount would raise around $800 billion over the coming decade, the Treasury Department has estimated - a tiny fraction of the budget deficits expected during that same period.
Democratic aides have said the Senate will debate the legislation as early as next week. Minority Republicans who say the tax increases will hinder job creation are virtually certain to derail the measure by forcing Democrats to produce 60 votes to prevail, which they will not be able to do.
When the debate occurs, Republicans are expected to offer their own measure extending the tax cuts for a year for everyone. The GOP-run House is expected to vote the week of July 30 on legislation renewing the tax cuts for everybody for a year and establishing a process aimed at pressuring Congress to overhaul the entire tax code next year.
The top rate on capital gains and dividend income is currently 15 percent. The draft bill sets those rates at 20 percent for 2013, and Obama's health care law will add another 3.8 percent for the highest earners.
Under current law, the rate on long-term capital gains is to rise to 20 percent next year, the same as in the Senate Democratic bill.
But Obama had proposed letting the top rate on dividends revert to 43.4 percent, including the additional 3.8 percent from the health care law. The draft Democratic legislation cuts that proposal nearly in half.
The Senate Democratic bill would also:
-Gradually end the personal exemption for households making over $250,000, and limit their itemized deductions;
-Impose a maximum 45 percent estate tax on estates worth more than $3.5 million. Currently there is a top rate of 35 percent on estates worth over $5.1 million;
-Extend the $1,000 child tax credit and the $2,500 American Opportunity Tax Credit for a year;
-Adjust the alternative minimum tax for inflation for another year so millions of additional taxpayers would avoid the extra levies, which were originally designed to assure that the wealthy do not escape taxation.