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Tax cut stew for Christmas

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney.com) -- It's official: Now that resolution on the Bush tax cuts has been postponed until after the Nov. 2 mid-term elections, lawmakers have punted nearly every major time-sensitive tax issue until the end of the year.

All told, there are more than 100 tax provisions that have expired or are about to lapse. Here are some of the big ones:

Bush tax cuts: The Dec. 31 expiration of the 2001 and 2003 income and investment tax cuts.

AMT: The absence of a "patch" to protect non-wealthy Americans from having to pay the Alternative Minimum Tax for tax year 2010.

Estate tax: The reinstatement on Jan. 1 of the estate tax at levels nobody likes.

Tax extenders: The evergreen package of smaller breaks that regularly get extended every year, such as the option for individuals to deduct their state and local sales taxes on their federal return.

Making Work Pay: And the expiration of the Making Work Pay Credit for middle-class families, which President Obama wants extended for at least one more year.

Leaving big tax decisions to the last minute isn't unusual: Congress often waits for "the two-minute warning" before voting on so-called tax extenders, tax expert Ed Kleinbard said.

"The process is frustrating on a lot of levels," said Kleinbard, a law professor at the University of Southern California and a former chief of staff at the Joint Committee on Taxation.

But that frustration is likely to be more widespread this year because more of the general public will be affected.

What's the likely endgame?

Excellent question. Unfortunately, there's no clear answer yet.

Some have suggested there might be one big omnibus tax bill passed by Christmas that wraps together a lot of the outstanding tax provisions into one package.

Others say gridlock on some of the issues is a possibility.

"I think it possible that they have too much trouble [figuring out how to pay for some of the tax breaks] and end up kicking the extenders and estate tax into next year," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC. "It is also possible that a kitchen-sink bill starts by adding goodies to get votes ends up losing as many votes as it gets."

If any provisions don't get dealt with in 2010, lawmakers could pass them early next year and make them retroactive. But prolonging the uncertainty is not without consequence.

The uncertainty makes tax planning difficult and could harm the economy.

"If you believe these tax breaks are useful programs, you significantly undercut their utility by creating an environment where taxpayers don't know for sure if they can rely on them. You undercut their economic value," Kleinbard said. To top of page

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