What Will the New President Change About the Current Tax System?

By: Andy Weisenberger, Esq.

After the election of a new President, an issue that is always on the minds of the American public is “What will the new President change about the current tax system?” This past presidential election is no exception. While no one has a “crystal ball” to see what changes may actually be made to the federal tax system, the following are a few of President-Elect Obama’s main tax proposals.

  • The federal income tax rates for individuals in the 10%, 15%, 25% and 28% tax brackets will stay the same. However, the federal income tax rates for individuals in the top two tax brackets will increase from 33% and 35% to 36% and 39.6%, respectively.
  • The highest income tax rate on qualified dividend income will be increased to 20%. Dividends will not be taxed at ordinary income tax rates.
  • Senior citizens (over age 65) with earnings of less than $50,000 will be exempt from federal income tax and not be required to file a federal income tax return.
  • The federal estate tax exemption will be $3,500,000 and the maximum federal estate tax rate will be 45%.
  • There are no proposed changes to the federal gift tax.
  • The research and development credit for businesses will be made permanent.

In light of the current economic crisis, it is unknown how quickly these proposals may be put into law, or how they may be modified prior thereto. However, it is likely that we will see significant changes in the federal tax law in 2009.