FACTBOX-U.S. tax issues pending for rest of 2010

July 20 (Reuters) - Several pivotal decisions on U.S. tax policy will have to be decided by the end of 2010, with historically low tax rates on individual income, capital gains and dividends set to rise.

Lawmakers also might raise taxes on investment fund managers and revive the estate tax, which has lapsed for 2010.

Below is a summary of the key proposals:

INDIVIDUAL INCOME TAX RATES

Lawmakers are weighing renewal of a series of tax cuts enacted in 2001 and 2003 under former president George W. Bush that expire at the end of this year. President Barack Obama and his Democratic allies in Congress want to extend the lower rates for individuals earning less than $200,000 or couples making less than $250,000.

Tax writers in the House are considering a one-year extension of the lower rates for those in this group and a patch for the alternative minimum tax, enacted to ensure the wealthy pay at least some taxes, but which now hits more Americans because it is not indexed for inflation. The package carries a one-year price tag of $270 billion.

Without action, tax rates will rise for all income groups, to 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent, from the current categories of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

Making all the middle class tax rates permanent and extending other popular breaks such as child tax credits and relief from the marriage penalty would cost $1.3 trillion over 10 years, according to the congressional Joint Committee on Taxation.

Many Republicans favor extending all the tax cuts, including for those in the upper-income groups.

The deficit picture is part of the debate because under budget rules lawmakers can extend the so-called middle class tax cuts without finding offsetting revenue.

That is not true for the top two tax brackets, including the proposed boost in dividends and capital gains, setting up a debate as voters fret over the growing federal budget deficit.

By letting the Bush tax cuts for those in the upper income categories expire and boosting their capital gains and dividend tax rates back to 20 percent, the Obama administration estimates to generate about $678 billion over 10 years.

DIVIDEND, CAPITAL GAINS TAX

Investors are watching because under current law, tax rates on the upper income groups for dividends is treated as ordinary income in 2011, jumping to about 40 percent.

Obama has proposed raising tax rates on capital gains and dividends for the upper-income brackets to 20 percent from the current 15 percent.

But again, budget rules require lawmakers to find offsetting revenue if they want to keep the current low rates in place. That has been increasingly difficult in the current environment.

INVESTMENT FUND MANAGERS' TAX

The House of Representatives in May passed a bill to boost taxes on investment fund managers, known as "carried interest." That plan would subject 75 percent of their income to ordinary income tax rates, instead of the lower capital gains tax rate of 15 percent they now pay.

The Senate, however, stripped that provision from its version of the bill, so action is delayed until later this year. Many expect the issue to come back again as lawmakers hunt for ways to raise revenue.

ESTATE TAX

The estate tax vanished in 2010, as Republicans blocked a Democratic attempt to extend the prior 45 percent rate on estates passed on to heirs, above a value of $3.5 million for individuals and $7 million for married couples. The debate is likely to heat up, though, by the end of the year, because under current law, the tax roars back at a 55 percent rate over a $1 million individual exemption.

Republicans favor a repeal of the estate tax, though some have proposed taxing estates above $5 million for individuals at a 35 percent rate.

(Reporting by Kim Dixon; Editing by Eric Walsh)