Benefits across the income spectrum
There is something for almost everybody in the plan.
Under a compromise reached Monday between President Obama and Republican congressional leaders, middle-class households would keep the Bush-era tax breaks that save the typical family $3,000 a year, while also enjoying a cut in payroll taxes.
The wealthiest Americans would benefit not only from the Bush-era breaks but from a substantial cut in estate taxes.
Many long-term jobless would get an extension of unemployment benefits, welcome news for the 60,000 Bay Staters whose checks are about to run out. Low-income families with children would get additional relief with an extension of the earned income tax credit.
Businesses, meanwhile, would get tax breaks, some of which could particularly benefit equipment manufacturers, an important Massachusetts industry.
“Everybody gets a little bit of something they’ve been looking for,’’ said Brian R. Gilmore, the executive vice president of Associated Industries of Massachusetts, the state’s largest employers’ group. “We’re better off having movement instead of deadlock.’’
Here is a summary of the provisions, which must be voted on by Congress by Dec. 31, or taxes for virtually all Americans will rise.
For a couple earning $70,000 a year, that would lower their payroll taxes by about $1,400 a year, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington think tank.
Some of those savings would be offset by the end of a stimulus tax cut, which expires at the end of this year. Factoring that in, that same couple earning $70,000 would end up with about $600 more a year. “People’s paychecks are going to go up, and spending should rise,’’ Marr said.
To Donardo Marcellus, a 24-year-old engineer from Randolph, the tax savings do not amount to much. “I guess I could use it for extra gas or something,’’ he said.
The wealthy would also benefit from changes to the estate tax preventing taxes from jumping to as high as 55 percent on Jan. 1. The compromise would set the estate tax at a top rate of 35 percent after the first $5 million.
In Massachusetts, about 2,500 individuals or households paid estate taxes last year, according to the state Department of Revenue.
In Massachusetts, about 475,000 people took advantage of the child tax credit in 2008, according to the Internal Revenue Service, and more than 350,000 benefitted from the Earned Income Tax Credit.
A family with three children making $20,000 would continue to receive a tax break of $2,000 next year as a result of the combined credits, according to the White House,
“That’s real money for a family at that income level,’’ said Marr, of the Center on Budget and Policy Priorities.
That creates an incentive for companies to buy new equipment, which could boost sales at state equipment makers, said Gilmore, of the Associated Industries of Massachusetts. The research and development tax credit is also important to the state’s innovation economy.
“We are concerned about the deficit,’’ Gilmore said, “but we really have got to put a premium in jobs and job development. It’s the only way we’re going to pay off the deficit.’’
Donna Rafferty, 58, who has been unemployed since June 2009, is facing a cutoff of benefits by Christmas if Congress does nothing. Her unemployment check of $376 a week is all that is keeping her afloat as she continues to look for a job.
“I’m grateful for it,’’ she said of her unemployment payments. “I think it’s American that we help one another.’’