American small business owners are worried about whether they will be hit by an unprecedented $3.8 trillion tax increase on January 1. The threat of this tax hike has caused many to hold off on creating jobs or planning for expansion in 2011. Fortunately, Congress and the Administration have begun to make progress on addressing this critical issue.
Earlier this week, an agreement was reached that would extend all of the 2001 and 2003 income tax provisions for two years. It will also block higher taxes on capital gains and dividends by maintaining the current 15 percent top tax rate on long-term capital gains and qualified dividends. Additionally, the agreement replaces the Making Work Pay Credit with a reduction in the payroll tax.
Steps are also taken in the agreement to address the Alternative Minimum Tax (AMT) and the Death Tax. It includes a two year fix that will protect an estimated 21 million households from being hit by the AMT in 2011. The Death Tax, which would have soared to a top rate of 55 percent with a $1 million exemption, is made more manageable with a top rate of 35 percent and a $5 million exemption.
The Senate is now working on legislation to reflect this agreement. My Republican colleagues and I are hopeful that we will be able to pass a bill to stop the tax increases next week.