On Thursday, the Senate passed a new bill, already passed by the House, that extends reduced tax rates, changes the nature of the Alternative Minimum Tax (AMT), eliminates an extension to higher-education tuition deduction, and eliminates a special deduction for teachers who pay for supplies out of their own pockets.

The rich -- those with over a million dollars of income each year that is generated by capital gains in taxable accounts, not earned income or gains in tax-deferred accounts -- stand to win the most due to this bill.

Critics question the correlation between lower investment income rates and economic growth and say the reduced rates primarily benefit high-income taxpayers – since exposure to stocks for middle- and upper-middle income taxpayers tends to be through tax-deferred vehicles like 401(k)s.

In order to make up for the tax that will not be received by the government due to these changes, there is also a provision that will allow anyone to transform a Traditional IRA to a Roth IRA, paying income taxes during the process, starting in 2010. Opponents believe that most will opt not to convert, but there's always a chance the rules will change by then, and no one can accurately predict what tax rates will be.

The only step left is for the president to sign the bill.

	Income group		Saves		Reduces tax liability by:
	$20K-$30K		$10		0.4%
	$50K-$75K		$112		1.0%
	$75K-$100K		$406		2.3%
	$100K-$200K		$1,395		4.4%
	$200K-$500K		$4,527		5.9%
	Over $1 million		$42,766		4.5%

Update: Here's last night's story about the tax cuts that aired on Marketplace.

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