Capitol Hill

A high-stakes battle

With the so-called "Bush tax cuts" scheduled to expire at the end of the year, President Obama and Congress face one of the most important tax policy decisions in recent years—whether to raise taxes. Congress is expected to address this question this month, but it is unclear whether lawmakers will be able to reach agreement before tax increases take effect in 2011.

What's at stake

According to current law, tax rates on individual income, capital gains and dividends that were enacted in 2001 and 2003 will expire Jan. 1, 2011. If Congress fails to pass legislation to extend the existing rates, the result will be substantial tax increases for most Americans. In this scenario, income tax rates at all levels would increase; the 15 percent rate on dividends would increase dramatically to regular income rates; and the capital gains rate would increase from 15 to 20 percent.

In addition, the estate tax is scheduled to revert to its pre-2001 rate of 55 percent. Congressional Republicans claim allowing these lower tax rates to expire would result in the largest tax increase in U.S. history.

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