By now you’ve probably seen the headlines and heard the political rhetoric about the new tax law that was enacted yesterday. While a complete discussion of all the aspects of the law is more than I can fit in here (and more than you want to read, no doubt), I want to clarify a couple things.

First, let’s talk about “tax cuts”. Despite what you read and hear politicians say, there were only three taxes actually cut in this legislation. By cut, I mean reduced. They are 1) Alternative Minimum Tax (AMT), 2) the estate tax, and 3) Social Security payroll tax.

The AMT “cut” saved millions of taxpayers from seeing their taxes increased dramatically due to provisions that expired last December. This fix was supported by most congressional leaders as the AMT has been widely criticized as being too encompassing, potentially affecting any married couple earning anything north of about $75k. Hardly a break only for the wealthy, and every year Congress has tinkered with this to avoid hitting people too hard.

The estate tax rate, currently at ZERO, was scheduled to increase to 55%. It will now be 35%. Exemption amounts also have changed, but the net effect of this legislation was to reduce the amount of tax some future estates will pay. It’s a break for future heirs because rates will be less than what they otherwise would have risen to, but a big INCREASE from what they are today.

People who work for a living and generate earned income pay a percentage (6.2%) to the government for social security. For wage earners it comes right out of your paycheck, for Self Employed folks it takes the form of the Self Employment Tax. For 2011, the percentage will be reduced by 2%. This is a true freebie for anyone working, and isn’t based on level of income.

So where are the tax cuts for the rich? Arguably most of the above could apply to the wealthy just like the rest of us, but the big fuss was over expiring provisions that would have raised taxes on the highest earners. These provisions were not allowed to expire, thus preventing a tax increase on the wealthy.

In the world of political sound bites, preventing a tax increase is portrayed as a tax cut.

Read more tax articles from Paul’s tax blog