([ongrt55 of tbt I1nittb ~tatt5

JOINT COMMITTEE ON TAXATION

imta5bington, E«: 20515-6453

MAR 2 6 2012
MEMORANDUM TO: FROM: SUBJECT: Thomas A. Barthold Revenue Estimate

This memorandum is in response to your request of March 16, 2012, for a revenue estimate of S. 2059, the "Paying a Fair Share Act of 2012" estimated after a permanent extension of a "current policy" baseline. For the pUIJ>Ose f this estimate, we have assumed the "current policy" baseline implies a o permanent extension of the "Economic Growth and Tax Relief Reconciliation Act of2001 ('EGTRRA')," the "Jobs and Growth Tax Relief Reconciliation Act of2003 ('JGTRRA')," and the "American Recovery and Relief Act of2009 ('ARRA')." Under the proposal. the maximum statutory rate on ordinary income is 35 percent and the maximum rate on capital gains and qualified dividend income is 15 percent. (Under present law beginning in 2013, an additional 3.8-percent tax will be imposed on the net investment income of certain individuals and an additional hospital insurance tax equal to 0.9 percent of wages with respect to employment in excess of $200,000 ($250.000 in the case of a joint return) is also imposed.) The "current policy" baseline would permanently extend current estate and gift tax policy. Under present law, as modified by Title III of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of2010 (the 'Tax Relief Act')." the estate and gift taxes for estates of decedents dying and gifts made after 2010 generally are unified, with a five million dollar exemption equivalent amount and a tax rate of 35 percent. The five million dollar exemption amount is indexed for inflation for decedents dying and gifts made after December 31, 20 II. I For estates of decedents dying after December 31, 2010, and before January I, 2013, surviving spouses generally are permitted to utilize the unused portion of a predeceased spouse's estate tax exemption. In addition, the Tax Relief Act extended, through 2012, subtitles F, G. and H of Title V ofEGTRRA, which include special rules pertaining to conservation easements. the generation skipping transfer tax. and the extension of time to pay estate taxes, respectively. The "current policy" baseline would index the alternative minimum tax ("AMT") exemption amount for inflation and index the income thresholds for the 28-percent bracket and

t

For 2012, the inflation-indexed exemption amount is $5.12 million.

'lCongre5g of tbt 'ilnitrb ~tatt5
JOINT COMMITTEE ON TAXATION

tmasbington, 19«;205l5-6453

TO:
SUBJECT: Revenue tstlmate

Page 2

starting point of the phase out of the AMT exemption amount. non-refundable personal credits to apply against the AMT.

Also, the baseline would allow

Under S. 2059, a new tax would be imposed On certain high-income taxpayers. The amount of the tax would equal the excess (if any) ofa taxpayer's tentative fair share tax for the taxable year over the sum of the taxpayer's (a) regular tax liability (less allowable credits except for the foreign tax credit), (b) alternative minimum tax, and (c) payroll tax, where the payroll tax includes the employee's share of the OASDI and HI portions of FICA taxes, the additional 3.8percent tax on net investment income, and any self-employment taxes less the deduction for selfemployment taxes permitted under section 164(t) of the Code. The taxpayer's tentative fair share tax equals 30 percent of the taxpayer's adjusted gross income ("AGI") less modified charitable contributions, where modified charitable contributions equal the taxpayer's allowable charitable deduction under section 170 of the Code multiplied by the ratio of the taxpayer's total itemized deduction after the overall limitation of itemized deductions under section 68 of the Code to total itemized deduction before the application of section 68. The new tax would apply to taxpayers with AGI in excess of one million dollars ($500,000 for married individuals filing a separate return). The tax would be phased in for taxpayers with AGI between one million dollars and two million dollars ($500,000 and one million dollars for married individuals filing a separate return). The AGI thresholds would be indexed for inflation for years after 2013. S. 2059 would be effective for taxable years beginning after December 31, 20 12. For purposes of estimating the proposal, we have asswned an enactment date of May I, 2012.

Attachment:

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