Greetings,

 

On May 11, the Treasury Department released the "General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals," known as the "Green Book" for the color of its cover. This 130-page document carries a fairly comprehensive blueprint of the tax proposals the Administration hopes to shepherd through Congress to make its FY 2010 budget plans a reality.
 
Although we don't normally speculate, this is an interesting window into what may become law.
 
This is a summary of some of the proposed non-business changes affecting individuals:
 
... Beginning in 2011, the highest income tax rate would be 39.6% (now 35%). This was the top rate from 1993 to 2000.  The 39.6% rate would apply to married incomes over about $375,000.  The second highest tax rate would be 36% and would apply to taxable income above the following amounts but less than the income levels at which the 39.6% rate would apply: $250,000 less the standard deduction and two personal exemptions, indexed from 2009, for married taxpayers filing jointly; $200,000 less the standard deduction and one personal exemption, indexed from 2009, for single filers. The 28% rate bracket would be expanded so that taxpayers earning less than these amounts would not see their taxes rise because of the increased tax rate brackets.  You may remember that in the campaign the President promised no tax increase on incomes below $250,000.  These rates are set to keep that promise.
 
... After 2010, the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA) elimination of the limit on itemized deductions would sunset. As a result, itemized deductions (other than medical expenses, investment interest, theft and casualty losses, and gambling losses) would be reduced by 3% of the amount by which AGI exceeds statutory floors (which would be higher than under current law), but not by more than 80% of the otherwise allowable deductions. This is the same as the law prior to 2001.  The floors would be indexed annually for inflation. For 2011, the AGI floors would be adjusted for inflation starting with a value of $250,000 in 2009 for married taxpayers filing jointly and $200,000 in 2009 for single taxpayers.
 
... The EGTRRA elimination of the personal exemption phase-out would sunset after 2010 and the AGI levels at which the phase-out begins would be adjusted. For 2011, the AGI floors would be adjusted for inflation starting with a value of $250,000 in 2009 for married taxpayers filing jointly ($125,000 if filing separately) and $200,000 in 2009 for single taxpayers.
 
... For tax years beginning after 2010, a 20% tax rate on long-term capital gains and qualified dividends would apply for married taxpayers filing jointly with income over $250,000 less the standard deduction and two personal exemptions (indexed from 2009) and for single taxpayers with income over $200,000 less the standard deduction and one personal exemption (indexed from 2009). Currently, most individual taxpayers are subject to a 15% rate on these items.  The reduced rates on gains on certain assets held over 5 years would be repealed.  If a taxpayer has a gain to recognize, 2010 is probably the year to do it.
 
... The tax value of all itemized deductions would be limited to 28% whenever they would otherwise reduce taxable income in the 36% or 39.6% tax brackets.  This concept is new.  A similar limitation also would apply under the AMT. This would apply to itemized deductions after they have been reduced under the separate proposal (see above) that would reinstate the pre-EGTRRA limit on certain itemized deductions, but with adjusted AGI thresholds in 2011 of $250,000 (indexed from 2009) for married taxpayers filing jointly and $200,000 (indexed from 2009) for other taxpayers. After 2011, these thresholds would be indexed.