Senate Tax Cut Plan Has the Good and Bad for Everyone


The ethanol tax credit, known as the volumetric ethanol excise tax credit, or VEETC, will continue at its current level of 45 cents per gallon through Dec. 31, 2011. The tariff on imported ethanol will continue at its current level of 54 cents. None other than Iowa's Republican Sen. Chuck Grassley pushed for that provision, which will help the corn farmers of his home state.

Other energy tax credits and programs include a grant program for renewable energy developers and a "renewable electricity production credit" of 1.1 to 2.2 cents per kilowatt-hour for production from solar, geothermal and wind power among others.

Hometown Incentives

Tax incentives for investment in the District of Columbia include a 20 percent wage credit for employers for the first $15,000 of qualified wages to each employee who is a D.C. resident and works within a particular zone.

A zero-percent capital gains rate from the sale of "certain qualified D.C. Zone assets" where the poverty is at least 10 percent.

Senate Bill

Here are the main provisions of the Senate bill:

Temporary extension of unemployment insurance

The bill extends unemployment insurance for an additional 13 months.

The normal, maximum duration of state unemployment benefits has been 26 weeks, according to Joe Minarik, a member of the Bipartisan Policy Task Force. "The economy has been deemed so weak that they are going beyond the normal 26 week increment to add another 13 months, to a maximum of 99 weeks per person," he said. "The whole notion of having so many important provisions involving so much money for a tax code on a temporary basis is really unprecedented."

Social Security payroll tax cut

Workers earning $50,000 would get a $1,000 tax break while those making $100,000 would get a $2,000 break. Employees would contribute 4.2 percent to the Social Security payroll tax rather than 6.2 percent before wages reach $106,800.

"This provision helps low income people the most," said Nick Kasprak, programmer and analyst at the Tax Foundation.

Republicans would have preferred a tax cut in a more "pro-growth" area, such as cutting capital gains tax, according to Ellis of Americans for Tax Reform.

Lower taxes for those in lower-income range

Increase in earned income tax credit, or EITC, a refundable credit for certain low-income taxpayers. This is an extension of tax relief enacted in 2003 and President Obama's stimulus bill in 2009. The new bill would extend the EITC rate for families with three or more children of 45 percent through 2012, which was set to expire in January.

The bill retains the child tax credit at $1,000.

The "dependent care tax credit" increases the credit rate to 35 percent, and increases "eligible expenses" to $3,000 for one child and $6,000 for two or more children.

Return of the estate tax

The estate tax could return at 35 percent, with the first $3.5 million of a person's holdings exempted.

"The exemption is a lot higher and the estate tax is still lower than it has ever been," said Kaspark.

If Congress does not act formally, the estate tax could return in January at 55 percent, with a $1 million exemption.

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