This week, I’m letting my readers take over and tell you what they think about the expiring Bush tax cuts. As always, I think background and context are important. So here’s a quick primer on what’s happening and why…
The so-called Bush tax cuts are a series of tax breaks which were enacted in 2001 and 2003. The cuts were heavily touted at the time as a way to kick-start the economy. The plan, as many folks understood it, was to eventually make the cuts permanent. However, neither political capital nor the economy was on the President’s side. A post 9/11 world and the costs associated with the wars in Iraq and Afghanistan came together with a tumbling economy. The GOP couldn’t muster the votes to make the cuts permanent and the Dems couldn’t organize sufficiently to offer a workable alternative. The result is that the temporary cuts enacted by Congress are set to expire at the end of 2010. I think it’s fair to say that, nearly ten years ago, nobody saw that coming.
So what kinds of breaks are we talking?
1, Federal estate tax. The federal estate tax may be gone for 2010 but it comes back in 2011 with a personal exemption of $1 million and a flat rate of 55%.
2, Capital gains tax rates. The capital gains tax rates had been capped at 15% for long-term gains with a remarkable 0% available for some taxpayers. Those rates will bump back to 2001 levels.
3, Qualified dividend rates. To encourage investment, certain dividend rates were lowered to as little as 10%. In 2011, rates for most dividends will revert to ordinary income tax rates.
4, Individual income tax rates. Under the 2001 and 2003 structures, a new tax bracket was created at the bottom and rates were lowered across the board. All rates are set to increase in 2011.
5, Relief for families. The tax breaks offered relief from the marriage penalty and an additional child tax credit. Those are slated to disappear.
That’s not meant to be an exhaustive list – just some of the highlights of the tax breaks on the books which are slated to disappear.
In this economy, making the cuts permanent would be impossible. However, letting them. Expire completely means that Obama would break his “no tax increase for the middle class” pledge. So what’s a Congress to do? Check in all week for my readers’ thoughts on the matter!