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Lower Bush Administration income tax rates adopted a decade ago are set to expire Jan. 1, 2013, along with lower estate and investment taxes that were part of a December 2010 extension deal between President Obama and Congress.
The President has proposed that current income tax rates should be extended for one year just for households with income of less than $250,000 a year ($200,000 for individuals). Democratic Party leaders in Congress such as Rep. Nancy Pelosi of San Francisco want to extend the lower rates to incomes of less than $1 million. Republican legislators want the rates to apply to everyone.
Economists have warned that the increase of various tax rates at the beginning of next year could severely damage the fragile economy.
Advocates of letting the lower rates end point to administration projections that higher rates for those with higher incomes would bring in as much as $678 billion in additional revenue through 2020, while leaving the rates in place for all would cost $4 trillion plus interest on additional debt accumulated from continual deficits.
Opponents point to tax policy theory that lower rates result in more economic activity and eventually higher government revenue.
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