Who gains from tax-cut bill

This may save taxpayers who make $100,000 to $200,000 a few hundred dollars. But the bulk of the tax break will go to some 1 million Americans who earn between $200,000 and $600,000 a year.

"People who are AMT filers, whose liability is far above the regular tax rate, for every dollar of that new exemption, will be a dollar they don't have to pay tax on," says Mr. Ahern.

Other elements of the tax bill are equally controversial. For example, the new law will extend the more favorable treatment of capital gains and dividends for 2009 and 2010. Proponents point to the stock-market recovery, with the Dow Jones Industrial Average close to its all-time high.

"At the end of the day, having individual investors [encouraged] to continue to invest in the markets is a good thing," says J. Michael Barron, CEO of Knott Capital in Exton, Pa. "There are still a fair amount of people who are driven to invest by tax benefits."

In fact, some financial advisers argue that if the law had not been extended, it might have put more pressure on the financial markets.

"If they had let the Jobs and Growth Act of 2003 expire, I think you would have seen a lot of people with substantial capital gains selling their stocks before the law's expiration," says Fred Burke, president of Johnston Lemon Asset Management in Washington.

Some of Mr. Burke's clients have invested in companies such as Altria, Bank of America, and ExxonMobil because of the favorable treatment of dividends. "Investors love that they are not taxed on dividends," he says.

The lower tax probably does encourage more savings, agrees Len Burman of the Urban Institute. But he worries that "it also presents an enormous opportunity for tax sheltering so that income that ought to be taxed at the 35 percent rate ends up looking like the 15 percent rate for capital gains."

To help pay for some of the new tax cuts, Congress is giving high-income individuals the opportunity to shift their Individual Retirement Accounts (IRAs) to Roth IRAs. The money that goes into a Roth IRA is "after-tax" income, but it is not taxed when it is withdrawn. The Treasury estimates that the provision will raise more than $6 billion in tax payments the first year it goes into effect in 2010. But the government also estimates that over the longer term of five years, the provision will end up costing the federal budget $447 million.

This will be a big hit for investors, says Burke. "They resent the taxes they pay on their distribution," he says.

But Mr. Burman argues it will dry up another source of government income in the future. "Eventually, the revenue losses will catch up to you," he says.

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