It seems that Congress, the President and the American people are going to get serious about deficit reduction.  Well, that may be taking it too far, but it seems certain that some actions are going to be taken to reduce the deficit.  That means that some tax breaks are going to have to say bye-bye.  Which are the ones most likely to go?

1.    Estate Tax.  Currently the first $5 million of any estate is relieved from taxes when a person passes away.  The remainder is taxed at 35%.  If the current estate tax rate is not extended, those numbers change to $1 million and 55%. 
It’s safe to say that that won’t happen.  It is likely that the level and rate will change, but the question is where will the compromise come?

2.    Capital Gains.  Many people don’t know that this tax was initiated in 1921 and taxes assets held longer than two years, at a 12.5% rate.  The rate has fluctuated through the years including increasing form 20% to 28% during the Reagan Presidency.  It was lowered to 15% during George W. Bush’s first term.  It’s unlikely to stay that low for long.  Look for an increase back into the 20’s.

3.    Payroll Tax Relief:  In 2009 the payroll taxes of every American fell from 6.2% to 4.2%.  Expect that to stay for lower and middle incomes, but expect it to return to its original level for earners over $250,000.

4.    Earned Income Tax Credit: This ability to avoid paying income taxes is controversial and for those on the right who consider it unfair. The purpose of this credit is to provide an additional deduction for low-income persons.  The top credit is $5,751 for persons who are married, filing jointly and earn $49,078 and less. This law may get some adjustments in the negotiation process.

On the higher end of the income spectrum, the medicare surcharge of 3.8% for income earners over $250,000 will kick in as part of the Affordable Care Act.

It may turn out this constitutes a mere short list of revisions coming to the tax code at the end of 2012 and beginning of 2013.

Thank you to BusinessInsider.com for the article information.