© Copyright 2010 Deloitte Development LLC – Permission to reproduce with appropriate attribution granted.

Assumptions and Explanations:

• Summary provides an approximation of tax increases for taxpayers if (1) all Bush tax cuts expired or (2) budget proposals of
the Obama Administration (tax rate increases, limits on personal exemptions and itemized deductions) become law. Scenarios
show the tax effects assuming that changes took place during 2010. Income tax brackets and deductions such as standard
deductions, personal exemptions could vary slightly for 2011.
• The scenarios do not represent actual taxpayers, but use income and deductions based on IRS data that correlate to
taxpayers at chosen income levels. Income includes wages, capital gains and qualified dividend income, while deductions
represent state income taxes paid and other common itemized deductions, such as mortgage interest or charitable
contributions.
 • Scenario 4 illustrates the effect for a family of four, earning an amount similar to recent median income information.
• Assumes extension of 2009 AMT patch for all cases (current law, full repeal and Obama budget proposals).

Analysis

• Just as the Bush tax cuts provided tax savings to all taxpayers who had liabilities (other than some subject to AMT), a full
expiration of those cuts would result in across-the-board tax increases.
• Tax increases under the changes suggested by the Obama Administration would be limited to high-income taxpayers, those
singles and families with adjusted gross income in excess of $200,000 and $250,000, respectively.
• The Obama budget proposal to limit the benefit of itemized deductions would have a dramatic impact on high-income
taxpayers with substantial itemized deductions. Thus far, this proposal has not been considered seriously in the expiring tax
cut debate. If this proposal were not included in the analysis, the illustrated Obama tax liabilities for high-income individuals
would drop significantly. In that case, the Administration’s proposed rates would result in liabilities for high-income taxpayers
that would be slightly less than those under an expiration scenario.
• Comparing ‘Current law’ to ‘Full Expiration’ and the ‘Obama Budget,’ the most significant tax rate change would be the
potential increase in qualified dividend rates under full repeal to 39.6 percent. The increase would be less under the
President’s proposal – an increase to 20 percent. For high-income taxpayers, the capital gains rates would rise to 20 percent
under ‘Full Expiration’ and the ‘Obama Budget.’
• The restoration of the personal exemption phase out (PEP) and the itemized deduction limitation (Pease limitation) would
produce tax increases, although with small differences for high-income taxpayers whether under a ‘Full Expiration’ or ‘Obama
Budget’ scenario.
• President Obama’s budget proposals would provide a reduction in taxes as compared to a ‘Full Expiration’ scenario for
taxpayers whose income exceeded the 28 bracket unless they are affected by the proposed limitation on itemized deductions
(See, for example, scenarios 10, 11, and 12). The President has proposed to expand this bracket to prevent increases from
occurring for taxpayers falling under his defined ‘high-income’ taxpayer parameters.
• The extension or adoption of a permanent AMT patch, along with higher income tax rates would generally move taxpayers
away from, or out of, AMT liabilities, reversing a trend that was exacerbated under the Bush tax cuts. High-income taxpayers
could still face AMT liabilities depending on the mix of their income, for example, if they had substantial investment income
combined with certain types of itemized deductions.