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How Obama's Budget Plan Could Affect You

Here are some of the ways the Obama administration's proposed tax policies could impact middle- and high-income earners, and small businesses.

WASHINGTON (TheStreet) -- Tax experts will tell you it's never too early to plan for future taxes.

But Americans looking to get a head start on 2010's pending tax changes may need a crystal ball to interpret the muddy direction of Congress when it comes to fiscal policy.

The scenarios the Obama administration presented in its $3.8 billion budget proposal on Feb. 1 offer clues as to how big the tax man's bite will be. The full impact may still be a year away.

"As he did last year, the president has fashioned a budget that allows Congress to avoid taking immediate action on the largest and more controversial proposed business and industry tax hikes,"


tax policy group wrote in a review of the budget. "He continues to call for business tax increases that would primarily be effective in 2011. For its part, Congress may be less enthusiastic about voting to raise taxes before the November election and choose to kick difficult tax increase decisions down the road and into next year."

Here are some of the ways the administration's proposed tax policies could impact certain groups:

Top earners

The proposed budget plans to do away with many of the Bush administration's tax cuts for those earning more than $250,000 a year. The two individual income tax rates, 33% and 35%, would be restored to pre-2001 levels, 36% and 39.6%, beginning in 2011.

Those in the top tax brackets could see reduced deductions for mortgage interest payments and charitable donations.

Tax rates for capital gains and qualified dividends would increase 5%, to 20% for individuals earning more than $200,000 ($250,000 for joint filers). The current 15% rate would remain intact for all others.

The estate tax, which technically doesn't exist for 2010 due to Congress' inability to set a new rate, would be restored and made retroactive at a rate of 45% and with an exemption of $3.5 million.

Middle class

When President Barack Obama unveiled his proposed budget, he made his priorities clear.

"While we extend middle-class tax cuts in this budget, we will not continue costly tax cuts for oil companies, investment fund managers and those making over $250,000 a year," he said. "We just can't afford it."

Low- and moderate-income families will hold onto Bush administration tax cuts. They could get additional tax relief from the "Making Work Pay" credit and an increase in the child and dependent care credit, which would double the deduction for people who are working or looking for work, and paying for child care.

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The Making Work Pay credit would continue to give up to $400 to individuals and $800 to couples who make less than $75,000 ($150,000 for married couples).

Small business

The Internal Revenue Service has been cracking down on improperly classified freelancers and independent contractors, redefining some of them as full-time or on-payroll employees. The move would impact small shops that rely on temporary help.

However, employers could receive a $5,000 tax credit for each new worker hired in 2010. The credit, limited to $500,000 per company, is intended to help small businesses more than their larger counterparts.

Small businesses could also benefit from tax breaks on capital gains for firms that invest in expanding companies and start-ups. Changes that allow businesses to write off, rather than just depreciate, old or outdated equipment could boost expansion.

Companies large and small will pay more to keep the unemployment system solvent. The Federal Unemployment Tax, a 6% levy on the first $7,000 paid to employees, currently has a 0.2% temporary surtax. The administration is looking to make that increase permanent.

Big business

As expected, the budget includes the hotly debated "fiscal crisis responsibility fee," a 15% tax on financial companies that aims to recoup the costs of the Troubled Asset Relief Program. A fee of 15 basis points would be levied on the debt of firms with more than $50 billion in assets.

Bad news could bubble up for

Exxon Mobil

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. Although these companies will no longer be taxed for drilling on the outer continental shelf, other tax preferences could be eliminated for oil, gas and coal producers. Tax incentives for domestic exploration and drilling could also be cut.

The proposed return of a Superfund tax could raise $19 billion during the next 10 years. The taxes, first enacted in 1980 to finance the cost of cleaning toxic waste sites, expired in 1995. If restored, the U.S. would charge a 9.7-cent excise tax on each barrel of oil received at U.S. refineries. Additional taxes would be assessed for hazardous chemicals sold in the U.S.

-- Reported by Joe Mont in Boston.