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Senate Proposals to Extend the 2001-2010 Tax Cuts

Democrats and Republicans in the Senate have introduced legislation to extend some of the tax cuts originally passed in 2001 through 2009 and that Congress extended in the compromise legislation at the end of 2010.

TPC has produced distributional analysis of the competing plans against both a current law and a current policy baseline for the 2013 calendar year.

Current law refers to the law currently scheduled for a given year; that is, the law that will prevail if Congress does not act to change it. Thus, under current law, most of the Bush tax cuts passed in 2001 and 2003 and the Obama stimulus provisions originally enacted in 2009 will expire at the end of 2012. Current law also assumes that there will be no fix for the alternative minimum tax (AMT); the most recent fix, or "patch" expired at the end of 2011.

Current policy assumes that the tax law for the current year will apply to all future years, regardless of scheduled changes. TPC’s current policy baseline assumes extension of all temporary provisions in place for 2011 (except for the payroll tax cut). TPC's current policy baseline also assumes an AMT patch. In this analysis, we assume the baseline AMT patch takes the same form as the AMT patch in the Republican version of the tax extension proposal. This avoids spurious tax changes arising simply from a different interpretation of what it means to "patch" the AMT.1

Democratic Plan (S.3412, "The Middle Class Tax Cut Act")

Relative to the current law baseline, the Senate Democrats' plan temporarily extends for one year the provisions from the 2001 tax cut legislation, including:

  1. the 10, 25, and 28 percent statutory marginal tax rates on ordinary income;
  2. 33 percent tax rate for married couples with taxable income under $250,000 less the standard deduction and two personal exemptions; single taxpayers with taxable income under $200,000 less the standard deduction and one exemption; and heads of household with taxable income under $225,000 less the standard deduction and one exemption; the thresholds would be indexed for inflation after 2009;
  3. the repeal of the limitation on itemized deductions ("Pease") and the personal exemption phase-out (“PEP”) for married couples filing a joint return with adjusted gross income (AGI) less than $250,000; single taxpayers with AGI less than $200,000; and heads of household with AGI less than $225,000; the thresholds would be indexed for inflation after 2009;
  4. the $1,000 per child amount for the child tax credit (CTC); 15 percent partial refundability based on earnings greater than $10,000, indexed for inflation after 2001;2
  5. marriage penalty relief for the standard deduction, earned income tax credit (EITC), and the 15 percent bracket;
  6. expanded child and dependent care tax credit (CDCTC); and
  7. other provisions including the adoption credit and expanded student loan interest deduction.

The Democrats' bill temporarily extends for one year the following provisions from the 2003 tax cut legislation:

  1. repeal of the 8 percent and 18 percent tax rate on capital gains from the sale of assets held for more than five years;
  2. 0 percent tax rate on capital gains and qualified dividends for those who would otherwise be in the bottom two tax brackets; and
  3. 15 percent tax rate on capital gains and qualified dividends for those who would otherwise be in the 25, 28, or 33 percent tax brackets.

The rate would be 20 percent for those in the top two tax brackets.

The Senate Democrats' bill also temporarily extends for one year the following provisions originally enacted in the stimulus legislation of 2009:

  1. replacing the Hope Scholarship credit with the larger, and partially refundable, American Opportunity Tax Credit (AOTC);
  2. reduction in the earnings threshold for the refundable CTC to $3,000, unindexed for inflation; and
  3. the EITC enhancements for families with three or more children, and the $5,000 (indexed for inflation) increase in the EITC plateau for married couples.

The bill proposes to patch the AMT for 2012 only. It sets the AMT exemption at $78,750 for married couples filing a joint return, $50,600 for others (half the joint amount for married individuals filing a separate return); and allows personal non-refundable credits regardless of tentative AMT.

TPC has produced two sets of distribution tables in order to deal with the bill's treatment of the AMT and the estate tax.

First, the Democrats' bill does not patch the AMT in 2013. Relative to the current policy baseline, our standard distribution tables of the legislation thus show a tax increase for households who would end up on the AMT in 2013 absent a patch.

Second, the Senate Democrats' bill is silent on estate, gift, and generation-skipping transfer (GST) taxes and thus implicitly allows them to revert to their current law state after 2012. Thus, for example, the effective exemption for the estate tax would be $1 million in 2013 and the top statutory estate tax rate would be 55 percent. In our standard distribution tables relevant to the current law baseline, the Democrats' bill shows no effect from the estate tax because their proposal merely reflects what is already in the baseline. But in our current policy baseline the estate tax exemption is $5 million indexed for inflation and the top estate tax rate is 35 percent. In our standard distribution tables relative to the current policy baseline, we have assumed the Democratic proposal would, in fact, allow the estate tax to revert to current law and we therefore show a tax increase from their proposal.

It is highly unlikely, however, that the Democrats would allow the AMT to remain unpatched and would allow the estate tax to revert to pre-2001 law. In fact, in an earlier version of their bill, S.3393, the Democrats included language to extend 2009 estate tax law, which would result in a $3.5 million effective exemption (not indexed for inflation) and a top estate tax rate of 45 percent. To facilitate comparison with the Republican bill (described below) that patches the AMT for both 2012 and 2013 and to capture what appears to be the ultimate Democratic intent on the estate tax, we have produced additional distribution tables showing the effects of the current Democratic plan plus a 2013 AMT patch and extension of 2009 estate tax law.3

Republican Plan (S.3413, "The Tax Hike Prevention Act of 2012")

Relative to the current law baseline, the Senate Republicans' plan temporarily extends for one year the provisions from the 2001 tax cut legislation, including:

  1. the 10, 25, 28, 33, and 35 percent statutory marginal tax rates on ordinary income;
  2. the repeal of Pease and PEP;
  3. the $1,000 per child amount for the child tax credit (CTC); 15 percent partial refundability based on earnings greater than $10,000, indexed for inflation after 2001;
  4. marriage penalty relief for the standard deduction, earned income tax credit (EITC), and the 15 percent bracket;
  5. expanded child and dependent care tax credit (CDCTC); and
  6. other provisions including the adoption credit and expanded student loan interest deduction.

The Republicans' bill temporarily extends for one year the following provisions from the 2003 tax cut legislation:

  1. repeal of the 8 percent and 18 percent tax rate on capital gains from the sale of assets held for more than five years; and
  2. 15 percent tax rate on capital gains and qualified dividends (0 percent for those who would otherwise be in the bottom two tax brackets).

The bill also extends the estate, gift, and GST tax provisions originally enacted in 2010, including:

  1. an effective estate tax exemption of $5 million, indexed for inflation; and
  2. a top 35 percent estate tax rate.

The Republican Bill extends the AMT patch for two years, 2012 and 2013. It sets the 2012 AMT exemption at $78,750 ($79,850 in 2013) for married couples filing a joint return, $50,600 ($51,150 in 2013) for others. The exemption amount for married individuals filing a separate return is half that for joint filers. The bill also allows personal non-refundable credits regardless of tentative AMT for both 2012 and 2013.

Somewhat analogous to the Democratic bill's treatment of estate, gift, and generation-skipping transfer (GST) taxes, the Republican proposal is silent on tax cuts affecting the AOTC, the EITC, and the CTC originally enacted in the 2009 stimulus legislation. The Republican bill, therefore, implicitly allows these low-income tax-cut provisions to expire as scheduled at the end of 2012. In our distribution tables relevant to the current law baseline, the Republicans' bill shows no effect from this because their proposal to allow these provisions to expire reflects what is already in the baseline. But our current policy baseline extends these provisions. In our distribution tables relative to the current policy baseline, we have assumed the Republican proposal would, in fact, allow the AOTC, EITC, and CTC provisions to expire and we therefore show a tax increase on some low-income households as a result of their proposal.

Distribution Tables

TPC estimates of the distributional effect in 2013 of the Democrats' Proposal, S.3412, The Middle Class Tax Cut Act

Note that TPC has produced two versions of the Democrats' legislation. One version takes the bill as written, and therefore does not include an AMT patch in 2013 and allows the estate tax to revert to its pre-2001 law state in 2013 (i.e. a $1 million effective exemption and a 55 percent top statutory rate). The second version presents the proposal and adds in a 2013 AMT patch and extension of 2009 estate tax law.

Legislation as written (no 2013 AMT patch and pre-2001 estate tax law)

Current Law in 2013 by Cash Income Level    Current Law in 2013 by Cash Income Percentile

Current Policy in 2013 by Cash Income Level    Current Policy in 2013 by Cash Income Percentile

Legislation with addition of a 2013 AMT Patch and Extension of 2009 Estate Tax Law

Current Law in 2013 by Cash Income Level    Current Law in 2013 by Cash Income Percentile

Current Policy in 2013 by Cash Income Level    Current Policy in 2013 by Cash Income Percentile

Incremental Effects of Raising High-Income Threshold

Legislation as written (no 2013 AMT patch and pre-2001 estate tax law)

$500,000 Threshold by Cash Income Level, 2013   $500,000 Threshold by Cash Income Percentile, 2013

$1 Million Threshold by Cash Income Level, 2013    $1 Million Threshold by Cash Income Percentile, 2013

Legislation with 2013 AMT Patch and Extension of 2009 Estate Tax Law

$500,000 Threshold by Cash Income Level, 2013    $500,000 Threshold by Cash Income Percentile, 2013

$1 Million Threshold by Cash Income Level, 2013    $1 Million Threshold by Cash Income Percentile, 2013


TPC estimates of the distributional effect in 2013 of the Republicans' Proposal, S.3413, The Tax Hike Prevention Act of 2012

Current Law in 2013 by Cash Income Level    Current Law in 2013 by Cash Income Percentile

Current Policy in 2013 by Cash Income Level    Current Policy in 2013 by Cash Income Percentile


Revenue Estimates

The following table summarizes the official revenue estimates for the competing proposals as prepared by the Congressional Joint Committee on Taxation.

TPC Summary of JCT Revenue Estimates (Updated July 30, 2012)

TPC Estimates of Raising High-Income Thresholds in Democratic Bill 


1 The values of the AMT exemption in the Republican proposal appear to have been chosen to keep the number of AMT taxpayers in both 2012 and 2013 at about 4 million. The resulting AMT exemption values are slightly higher than those that would be obtained by indexing the 2011 values for inflation, which is an alternative interpretation of an AMT patch that TPC has used in the past. For example, the 2013 AMT exemption in the legislation is $79,850 for married couples filing a joint return and $51,150 for others. Indexation would imply values of $77,950 for married couples filing a joint return and $50,700 for others. The exemption for married individuals filing a separate return would be half the joint amount in both cases.
2 See below for additional enhancements to the CTC contained in the bill.
3 We have assumed, for the sake of comparability, that the 2013 AMT patch accompanying the Democrats' legislation would contain the same AMT exemption levels as the Republican patch. This would not necessarily be the case, however. Because the Democratic legislation scales back the ordinary income tax cuts on incomes greater than $250,000/$200,000, it throws fewer people onto the AMT rolls. Thus, to keep about 4 million taxpayers on the AMT—which appears to be the goal of recent patches—would require a lower exemption level under the Democrats' proposal. This also implies that the cost of the AMT patch in 2013 under the Democratic alternative would be lower than under the Republican plan.