Obama Budget Plan

Don't Mess With Taxes on the Obama Budget Plan:

The 2001 and 2003 tax cuts by the previous administration will be extended for lower- and middle-income taxpayers.

The two top tax bracket rates of 33 percent and 35 percent will increase to their pre-2001 levels of 36 percent and 39.6 percent. This change would take effect in 2011.

Taxpayers in those two top brackets would face an increased capital gains and dividends rate. Currently, they pay 15 percent. This rate would go back to its 20 percent level and would do so beginning with the 2009 tax year.

Phaseouts of deductions and exemptions would come back into play. For years, higher earners have dealt with losing some of the value of these tax breaks, but the phaseouts themselves have been phasing out and are scheduled to be gone in 2010, giving everyone regardless of income, the same tax break bang for their write-off bucks.

But rather than letting them expire, Obama proposes reinstating the phaseouts in 2010 for joint filers earning $250,000 and for others making $200,000. In effect, say analysts at Deloitte, the Obama budget would raise the top income tax rate, considering the phaseouts, to 40.79 percent from its 2008 level of 35.35 percent.

The budget outline also proposes to limit the tax rate at which itemized deductions reduce tax liability. Taxpayers in the 39.6 percent bracket would be able to deduct itemized expenses only at the 28 percent rate.

The estate tax will be frozen at 2009 levels.That's an exemption of $3.5 million ($7 million for married couples) and a top rate of up to 45 percent.

And the alternative minimum tax we talked about earlier would be taken care of once and for all, rather than depending on annual patches by Congress. The AMT increased exemption amounts that were part of the American Recovery and Reinvestment Act of 2009 -- $46,700 for individuals and $70,950 for married couples filing jointly -- will be the baseline for this parallel tax and will be indexed for inflation each year.