This page tracks the status of a proposed change in federal income tax rates. 

Current status: Congress will consider changes in federal income tax rates as part of the budget legislation later this year. 

Background: Due to budgetary rules under which they were enacted, many of the tax breaks enacted under George W. Bush are scheduled to expire at the end of 2010. These include reductions in federal income tax rates. Without further action by Congress, tax rates will revert to the levels at the end of the Clinton administration. President Obama proposes to retain the Bush tax cuts for single taxpayers with income below $200,000 and married couples with income below $250,000. 

Republicans would prefer a full extension of the Bush tax cuts, and label the Obama proposal a tax increase because some taxpayers will pay at higher rates than apply in 2010. Democrats call it a tax cut, because most taxpayers will pay tax at lower rates than would apply under the sunset provisions of the 2001 tax law. 

Here is a comparison of projected tax rate schedules for single individuals in 2011 under three different scenarios: full extension of the Bush tax cuts, the Obama budget proposal, and the rates that would apply if Congress fails to act, allowing the Bush tax cuts to expire. The table reflects income tax rates only, not additional Medicare tax.

Relative to current law, which calls for expiration of the Bush tax cuts, the Obama proposal provides a tax cut for all taxpayers. Compared with a full extension of the Bush tax cuts, the Obama proposal provides the same tax rates up to $171,850 in income. The next slice of income, up to $195,550, is taxed at a lower rate under the Obama proposal than it would be if the Bush tax cuts were extended. This is because the Obama proposal calls for an extension of the 28% tax bracket up to the level where the 36% bracket kicks in.

Higher rates (relative to extension of the Bush tax cuts) begin to apply at $195,550 rather than $200,000 because this is the level that is deemed to fulfill Obama’s campaign pledge to protect those with income below $200,000 from a tax increase. This level assumes the $200,000 level is indexed for inflation since 2009, and reduced by the basic standard deduction and one personal exemption. 

Note that the income level where a single individual pays more total tax than under an extension of the Bush tax cuts is considerably higher than $200,000 due to the proposed increase in the size of the 28% tax bracket. 

 Related

• Reference Room (current tax rates and other numbers that change frequently)
• Your Tax Bracket (explanation of tax brackets and how they are used in tax planning)