By YOUNG MONEY Staff
8 December 2010

After seemingly endless wrangling on Capitol Hill, a new tax package seems likely to pass, although not without its fair share of controversy. The legislation will affect almost every U.S. citizen so it's worth summarizing it a bit.

First, if you're one of the wealthiest Americans, you stand to benefit handily: the top 1 percent of income earners will reap a quarter of all the new tax savings: in total, the tentative bill will save the richest Americans an average of $70,000 a year from the various tax incentives and cuts. Moreover, the bill would also cap the dividend and capital gains taxes at 15 percent, far lower than the highest rates on normal income.

Now, for those a little less fortunate than the richest Americans, the deal is beneficial, but not as helpful. For low to moderate-income Americans, the Obama Administration succeeded in pushing through an extension of several tax credits that first surfaced in the stimulus bill in 2009, including the tax credit, the child credit and the tuition deduction. However, while the proposal also creates a one year reduction in Social Security payroll taxes, individuals earning below $20,000 and families under $40,000 will be hurt as their tax savings are offset by the elimination of the Making Work Pay credit, a cut that failed to pass in the proposed plan.

Obama's major success was the extension of unemployment benefits for another 13 months which were previously set to expire. The bill faces a tough approval.