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The President’s Proposed 2011 Budget

While the budget that ultimately emerges from Congress will likely differ significantly from that proposed by the President, the President’s proposed budget is valuable in that it provides a framework for discussion over the next few months.

If you want the details of what’s in the budget proposal, you can go to the White House’s Office of Management and Budget website. Here’s a quick summary of some major provisions:

Individual tax proposals

  • Extend the Making Work Pay tax credit for one year (through 2011)
  • Issue new $250 economic recovery payments to individuals eligible for Social Security, railroad retirement, veterans benefits, and SSI benefits
  • Extend existing COBRA health insurance premium assistance (would apply to involuntary terminations prior to 1/1/11)
  • Expand the earned income tax credit (EITC), making permanent the current temporary expansion of EITC for workers with three or more children; the advanced earned income tax credit would be eliminated after 2010
  • Modify the child and dependent care tax credit to allow the maximum credit percentage for a larger base of taxpayers
  • Extend the optional deduction for state and local sales tax–in lieu of state and local income tax–for one year (through 2011)
  • Reinstate the phase out of itemized deductions and personal exemption amounts for higher income taxpayers; limit the value of itemized deductions for those in higher tax brackets to the value the deductions would have to someone in the 28% bracket
  • Restructure current marginal tax brackets: permit top rate to return to 39.6%, reinstate 36% bracket as second highest marginal tax bracket, expand 28% tax bracket
  • Make current 0% and 15% rates on qualified dividends and long-term capital gains permanent; establish new 20% rate for higher-income individuals
  • Make 2009 alternative minimum tax (AMT) exemption amounts (adjusted for inflation), and rules permanent
  • Permanently extend the estate tax, gift tax, and generation-skipping transfer tax (GSTT) at 2009 levels

Proposals relating to businesses:

  • Extend current rules and limits relating to bonus depreciation and Section 179 expensing for one year (through 2010)
  • New 100% exclusion for gain on the sale of qualified small business stock; AMT preference item for gain excluded on sale of small business stock would be eliminated
  • Liberalize tax treatment of cell phones; lighten substantiation requirements and limitations, exclude fair market value of personal use from gross income
  • Create a new tax credit of up to $5,000 for each new hire made by an employer

Retirement and College Planning

  • Employers who do not offer a retirement plan would be required to offer automatic IRAs to employees, with contributions made through payroll deduction
  • “Savers” credit relating to establishment of retirement plans and funding of retirement plans and IRAs would be modified and expanded for both employers and individuals
  • American Opportunity tax credit would be made permanent and key figures indexed for inflation.
  • Strengthen income-based repayment plans for student loans by reducing monthly payments–overburdened borrowers will pay only 10% of discretionary income in loan payments and remaining debt will be forgiven after 20 years
  • Permanently expand Pell Grant limits

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