TAX CUTS EXTENDED

Late last night, the US House of Representatives voted 248 -117 to approve the tax extension deal negotiated by President Obama with Republican leadership. The bill extends the Bush-era tax cuts for 2 years, until December 31, 2012, and is scheduled to be signed by the President today.

The bill continues the current top income tax rates at 33% and 35%, and most significantly, and contentious, the Estate tax provisions approving a top estate tax rate of 35%. An additional reduction in income tax withholdings for Social Security of 2% — notably for only 1 year – will provide a cash benefit per average household of $934 for 2011. Also included is an extension of unemployment benefits to an estimated 2 million unemployed Americans whose benefits were slotted for elimination January 1, 2011.

The purpose of the extensions is to keep money flowing into the economy and strengthen the slowly improving economy. The cost of the extension will add $858 Billion dollars to the current deficit. Apparently Wall Street had already factored an approval into the financial markets as early morning action showed little response to the news. Longer term, the 2012 elections will be dominated by expiring tax cuts – and remember a wage freeze for Federal employees also expires on December 2012. Major issues still ahead for the economy and the American wage earner.