What Will Congress Do to Your Taxes?

Last-minute action -- or inaction -- may affect your year-end tax moves.

Uncertainty on Capitol Hill is making everyone’s life miserable. Congress’s inability to decide on what to do about the expiring Bush-era tax cuts means that we probably won’t know what will happen to next year’s tax rates until after the November elections. In the meantime, review your options so that you’ll be ready to act once Congress does. We’ll help you decide what’s appropriate for you, depending on your income, under a variety of scenarios.

President Obama wants to keep current tax breaks in effect for lower- and middle-income taxpayers but favors reinstituting higher rates for the wealthiest 3% of Americans -- those whose taxable incomes exceed $200,000 ($250,000 for married couples). Ironically, while the Obama plan would raise taxes on the highest-income earners, some pretty well-off taxpayers would enjoy a five-percentage-point rate cut on some of their income. That’s because the 28% bracket (which now ends at about $170,000 for singles and $210,000 for couples) would have to be expanded to accommodate the president’s definition of middle class. So some income now smacked by the 33% rate would drop into the 28% bracket.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance