Tax Options for the Second Obama Administration

Since the election, President Obama has reaffirmed his commitment to increasing marginal tax rates for upper income taxpayers while maintaining for lower income taxpayers the tax rates that have been in place since 2001. The basic theme is to reverse for upper income taxpayers the tax benefits conferred by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Unless new tax legislation is passed, the tax law for years beginning after December 31, 2012, is scheduled to revert to the rules that applied before those two tax acts. This report summarizes how the tax rules will change in the absence of new legislation, and how previous proposals by President Obama would continue the tax cuts for lower income taxpayers while allowing the former rules to apply to “upper-income” taxpayers, who are defined as those with adjusted gross income in excess of $250,000 on joint returns and $200,000 for single taxpayers (adjusted for inflation since 2009).