Factbox: Tax issues pending amid Rangel's replacement

WASHINGTON (Reuters) - The temporary replacement of Charles Rangel, the powerful Democrat who controls the key tax-writing panel in the U.S. House of Representatives, raises question about what will happen to a series of important tax issues pending in Congress.

Pete Stark, a California Democrat who has been active in health financing and particularly critical of for-profit health insurers, is seen as a likely replacement. But that may only be temporary. Rangel on Wednesday requested a leave of absence as chairman of the House Ways and Means Committee, pending the outcome of a sweeping ethics probe of him.

Here is a summary of outstanding issues that must be addressed this year.

BUSH TAX CUTS

The most significant tax issue facing Congress is whether to extend individual income tax cuts introduced by former President George W. Bush in 2001 and 2003. They are set to expire at the end of the year.

President Barack Obama and most Democrats support extending the cuts, except for earners in the top two income brackets. That would put the top two brackets back up to 39.6 percent and 36 percent. The current top rates are 35 and 33 percent.

Lawmakers will need to find a way to pay for the extension of the cuts in the lower-income categories, which will cost more than $2 trillion over a decade.

ESTATE TAX

The rules for estate taxes expired at the end of 2009, due to a logjam in the Senate. The 2009 law exempted from tax the first $3.5 million in an estate for an individual, with a maximum tax of 45 percent on property above that amount.

Because of a quirk in the law, the tax has disappeared entirely in 2010, but will spring back to pre-2001 levels exempting $1 million in property, with a maximum rate of 55 percent above that in 2011.

CORPORATE TAXES

Rangel's major legislative effort was a 2007 tax overhaul bill, which sought to close corporate tax loopholes and lower the top corporate income tax rate from 35 percent to 30.5 percent. He has recently advocated taking it even lower.

That didn't pass but it served as a blueprint for many of President Barack Obama's tax reforms, including a proposal to curb corporate deferral of taxes on profits earned overseas.

INVESTOR, WALL STREET TAXES

Obama and some in Congress have proposed taxing the 'carried interest' earned by hedge and private equity fund managers at the ordinary income tax rate, rather than the 15 percent rate they pay now.

The president also proposes raising taxes on dividends and long-term capital gains for households with income over $250,000 to 20 percent from the current 15 percent.