Yesterday, Congress completed action on a tax bill that offers large new tax breaks to the wealthy, but virtually nothing to average taxpayers.
The two key elements of the bill, which President Bush will sign, are:
- Tax cuts on dividends and capital gains. The bill extends the 2003-enacted 15-percent top tax rate on dividends and capital gains into 2009 and 2010. Under prior law, this tax break was slated to end after 2008. The two-year cost of the extension is officially estimated to be $51 billion—although the actual cost may be considerably larger.
- AMT relief. The bill extends and slightly enhances the temporary increase in the Alternative Minimum Tax exemption, which had expired at the end of 2005. This provision applies to 2006 only. The one-year cost of this change is $34 billion.
The bill also includes a number of special-interest tax breaks, such as a corporate tax loophole, worth almost $5 billion over the next five years, that allows companies such as General Electric and Citigroup to avoid taxes on U.S. profits that they have artificially shifted off-shore.