April 22, 2012

Rethinking the “Bush Tax Cuts”

I no longer support a “Bush Tax Cuts” extension.

Collectively known as the “Bush Tax Cuts”, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) made sweeping changes to the U.S. Tax code.

Among other things, EGTRRA and JGTRRA lowered the tax rate on the bottom fifth of income earners by 5 points, from 15% to 10%, a full one-third cut in their tax burden.  Also lowered were the tax rates for the next four income tiers from 28 to 25, from 31 to 28, from 36 to 33, and from 39.6 to 35 respectively.  The acts also increased child tax credits and eliminated the marriage penalty, while lowering the tax rates on inheritances, capital gains, and dividends.

The acts contained 2010 sunset provisions, but were given two year extensions through 2012.  President Obama and Congressional Democrats, in their desire to make the wealthy pay their “fair” share, have moved to block further extensions of EGTRRA and JGTRRA.  They intend to force sunsetting of the “Bush Tax Cuts” and allow them to expire at the end of this year.  Without those extensions, the tax rates will return to their former levels.

That will mean a 13.1% tax increase on the top one-fifth of incomes, with increases of 9.1%, 10.7%, and 12% for the next three tiers, and a whopping 50% tax increase for those in the lowest bracket.  The child tax credit will drop from $1,000 to $500.  The marriage penalty will return.  Estates will be gutted by a 55% death tax.  Return on investment, capital gains, will drop by one-third as the tax rate increases from 15% to 20%.   Dividends, a major funding source for retirement accounts currently taxed at 15%, will be taxed at the same rate as ordinary wages, up to 39.6% for those at the top level.

So, instead of supporting a continued “Bus Tax Cuts” extension, I now stand in full opposition to the “Obama Tax Increases”.  $500 BILLION in tax increases that could cripple an already struggling economy, starting January 1, 2013.

Dennis P. O'Neil