Congress will return next week for a lame duck session in which they have urgent tax issues to address. One of the biggest issues is what to do with the expiring Bush-era tax cuts. Orange County tax attorneys point out that if the cuts are allowed to expire, taxes will go up for almost all taxpayers.
When the Bush tax cuts were passed in 2001, President Bush did have a Republican majority in Congress, but not enough of one to overcome a Democratic filibuster. The Republicans used "reconciliation" to pass the tax cuts with a simple majority. However, because the tax cuts would increase the deficit, they could only be passed for ten years. That means they will expire on the first day of 2011.
The 2001 tax cuts reduced income tax rates, but also lowered capital gains taxes, gave an increased child tax credit, and eliminated the "marriage penalty," in effect cutting taxes for married people.
President Obama is only willing to continue the cuts for people making under $200,000 a year, or families making under $250,000 a year. Republicans want to continue the cuts at all income levels.
Some speculate that there will be a compromise allowing the cuts to move forward at all income levels for another year or two.
There is also the issue of the alternative minimum tax (AMT). As this "millionaires tax" has begun to touch more middle class families, Congress has been amending the law to protect them. But in order not to reveal the deficit implications of the amendments, Congress has been making changes each year that will last only one year. This year, they have not yet made the amendments. If they do not, then an estimated twenty million families will owe higher taxes due to AMT.
Also high on the agenda is the estate tax, gone entirely in 2010, but set to roar back to life in 2011 unless Congress acts in this session.
Source: CBS News "Congress Faces Major Tax Decisions During Lame Duck Session" 11/9/2010