There were two major tax cutting bills that were enacted during President Bush’s administration. They were the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). These two pieces of legislation are often referred to as the “Bush Tax Cuts”. The bills included across the board tax relief for American taxpayers. Many of the tax cuts included in these bills had expiration dates of December 31, 2010. There is much debate in Washington over which, if any, of these provisions should be extended to the future.
There is no debate that the two pieces of legislation provided tax relief for most every American taxpayer. The following is a summary of significant provisions that are set to expire at the end of this year:
Tax brackets: EGTRRA created a new series of lower tax brackets; 10%, 15%, 25%, 28%, 33% and 35%. These lower tax brackets will be replaced with the following higher tax rates 15%, 28%, 31%, 36% and 39.6%. For example, if you are currently in the 10% bracket, your tax rate will increase by half to 15%. Unless Congress and the President act, these new higher rates will impact every US taxpayer.
Marriage penalty: Anyone who remembers political debates of the 1990’s surely remembers discussions regarding the marriage penalty. In many cases, if a man and woman got married, their tax bill filing a joint return was more than their combined tax bill if they each filed single returns. The Bush Tax Cuts had several provisions which provided relief from this so called penalty. This included a standard deduction for a married filing joint couple to be double that of a single filer. In addition, tax rates for married filers were adjusted to reduce the penalty. Much of the relief provided in EGTRRA and JGTRRA will expire in 2011.
Child tax credit: The child tax credit is currently $1,000. This will fall to $500 in 2011. Also, the number of families eligible to receive the credit will decline significantly.
Qualified dividends: The tax rate for qualified dividends is a maximum of 15%. Starting in 2011, dividends will be subject to ordinary income tax rates ranging between 15% and 39.6%.
Capital gains: The top tax rate on capital gains will increase from 15% to 20%.
Estate tax: For 2010 the estate tax has been repealed. However, it returns in 2011 with an exemption level of $1 million and top tax bracket of 55%.
Phase-outs: The Bush Tax Cuts eliminated the phase-outs of the personal exemption and for itemized deductions. These phase-outs return in 2011.
The Tax Foundation estimated that the median family of four saved about $2,200 in federal taxes each year that the Bush Tax Cuts were in place. Much of this savings will vanish if these tax provisions are allowed to expire.