March 30, 2012 1:19 pm

Raise or Lower Tax Rates?

The current federal individual income tax rates are set to expire at the end of 2012. Should Congress raise or lower the tax rates next year or keep them the same? That’s the debate that has begun. Competing visions of tax changes have been introduced in Congress:

  • Sen. Harkin (D-IA) introduced the Rebuild America Act, which would implement the so-called Buffett rule. Under this rule, those with income over $1 million would pay at least a 30% tax rate.
  • Rep. Ryan (R-WI) sponsored a budget proposal that passed the House in late March. It calls for two individual tax rates of 25% and 10%; high-income taxpayers would pay no more than the top 25% tax rate.

Because this is an election year, it may be that Congress simply extends the current Bush-era tax rates for another year, which would allow the new Congress to take up the matter.

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Tax Glossary

Deductions

Items directly reducing income. Personal deductions such as for mortgage interest, state and local taxes, and charitable contributions are allowed only if deductions are itemized on Schedule A, but deductions such as for alimony, capital losses, moving expenses to a new job location, business losses, student loan interest, and IRA and Keogh deductions are deducted from gross income even if itemized deductions are not claimed.

More terms