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The tax cut debate, by the numbers

From msnbc.com's Tom Curry:

How much more would Americans pay in income taxes if Congress and President Obama cannot strike an agreement before the current tax law expires on New Year's Eve?

According to the non-partisan Tax Policy Foundation's online tax calculator, a married couple earning about $75,000 a year, with two children under age 13, would pay $1,850 more in income taxes in 2011 if Congress allows the current law to expire.

Thus the couple would face a 77 percent increase in the taxes they owe: a jump from $2,410 to $4,260. Another way to look at that is a tax increase of about $35 a week in 2011.

A big part of that family's tax increase would result from the child tax credit –currently $1,000 for each child under age 17 -- being cut in half if the current law expires.

Take another example, a single person earning $350,000 a year and with no children.

If the current law expires, that individual would face a tax bill that would be $11,850 higher in 2011, according to the Tax Policy Foundation's tax calculator. That would amount to a 13 percent tax increase over what she'd pay if the current law were extended.

Obama's tax proposal, detailed in his fiscal year 2011 budget proposal, seems to stand no chance of being enacted because Senate Republicans will block it. Congressional Republicans want to extend all the current tax rates and provisions such as the $1,000-per-child tax credit. They oppose any increase in tax rates.

Obama wants to raise income tax rates for couples with incomes more than $250,000 and for singles with incomes more than $200,000, but to retain the current rates for taxpayers below those income thresholds. Obama would raise the top income tax rate from 35 percent to 39.6 percent, which is what it was from 1993 to 2000.

Here's how the family and the single person in the scenarios above would be affected if the Obama proposal were to become law:

Couple earning $75,000 a year, with two children
If tax law expires, their tax would be $4,260
If Obama plan were enacted, their tax would be $965

Single person earning $350,000 a year
If tax law expires, her tax in 2011 would be $98,759
If Obama plan were enacted, her tax would be $92,585

The Obama plan would result in lower taxes for the married couple than they'd pay if the current tax rates were simply extended. That's because Obama and most congressional Democrats want to continue a tax break called "Making Work Pay" which goes to middle- and lower-income people.

Most congressional Democrats believe that higher-income people should pay higher taxes than they now do and they've already enacted a significant tax increase on them in the health care law which Obama signed this year.

Taxpayers with income in excess of $200,000 for singles and $250,000 for couples will pay an additional tax of 0.9 percent on earned income and 3.8 percent on investment income.

That new tax begins in 2013. By 2019 it will raise about $40 billion a year. The new tax is not indexed – which means that as Americans' incomes increase in nominal dollar terms, the tax will affect more and more taxpayers.

As Sen. Kent Conrad, D- N.D., chairman of the Senate Budget Committee noted on MSNBC Wednesday night, there's another unresolved question in the tax debate: "What do you do about the estate tax? We don't have anything in place for next year, other than to go back to the old rates on the estate tax, which I think no one thinks is the appropriate level."

If Congress doesn't take action before year end, the top tax rate on estates will go from zero today to 55 percent in 2011. That tax would apply to estates over $1 million.

Sen. Jon Kyl, R- Ariz., the lead Senate GOP negotiator in the current tax talks with the Obama administration, and Sen. Blanche Lincoln, D-Ark., have proposed a plan that would raise the estate exemption to $5 million and set the tax rate at 35 percent.