How Much Will the Middle Class Lose if Bush Tax Cuts Expire
I always hear "eliminate the Bush tax cuts, they were for the wealthy".Or "there are so many loopholes for the rich in Bush's tax cuts".Well it's time to get through the hype and get to the facts. This is not whether I am for them or not. There are many tax breaks and a few tax hikes for businesses in the bill, but we will not discuss those here, that will be for another hub.
At the top of the plan was a cut on withholding taxes across the board of 3%. This applied to all tax brackets, low and high income. There was also a change to the core of which is a simplification of the current five-bracket income-tax system of 15 percent, 28 percent, 31 percent, 36 percent and 39.6 to four, lower ones of 10 percent, 15 percent, 25 percent and 33 percent -- is not primarily a sweetheart deal for the rich. In 2003 the withholding tax was lowered again.An elimination of the Bush tax cuts means a tax increase on everyone's paycheck of 5%.
Relief from the marriage penalty in the tax code. Married people with kids are by far the biggest beneficiaries of Bush's plan, saving between 15 and 22 percent of their current tax bill when the plan is fully phased in, including reductions in the so-called "marriage penalty". Elimination of the Bush tax plan will result in a 22% tax increase for married families plus the reinstatement of the marriage penalty.
There was a serious increase in the child tax credits from $500 to $1,000 per child. Plus he sent every tax payer receiving the tax credit a $400 dollar check. This credit is a welcome relief to both working parent families. Eliminating the Bush tax cuts will add more burden upon the working middle class.
The Bush Tax cuts made significant changes in several areas of the US Internal Revenue Code, including estate and gift tax exclusions, and qualified and retirement plans rules. In general, the act lowered tax rates and simplified retirement and qualified plan rules such as for Individual Retirement Accounts , 401(k) plans, 403(b), and pension plans. The changes were so large and numerous that many books and analysis papers were published regarding the changes and how to best take advantage of them. All the advantages you currently enjoy will disappear when the Bush tax cuts are eliminated. This will severely affect your retirement on so many levels, it would take a book to write about it. This falls on the backs of the middle class the most.
Capital gains tax was lowered from 10% to 8%. In 2003 the rate was reduced again down to 5%. This benefits everyone. Elimination of the Bush tax cuts will hurt everyone in this category
Now there were many changes to estate taxes, otherwise known as the death tax, and gifts exemption. Here are some highlights:
§ The estate tax unified credit exclusion, which was $675,000 in 2001 but scheduled to increase by steps to $1,000,000 in 2006, was increased to $1,000,000 in 2002, $1,500,000 in 2004, $2,000,000 in 2006, and $3,500,000 in 2009.
§ The maximum estate tax, gift tax, and generation-skipping tax rate, which was 55% in 2001 (with an additional 5% for estates over $10,000,000 in order to eliminate the benefit of the lower estate tax brackets) was reduced to 50% in 2002, with an additional 1% reduction each year until 2007, when the top estate tax rate became 45%. P.L. 107-16 amended Code Section 2001 to change the rate to 49% in 2003, going down by 1% each year through 2009. (Because of the increasing exclusion and decreasing top tax rate, the estate tax effectively became a tax of 45% on estates over $2,000,000 in 2007.)
§ The state estate tax credit, which effectively gave the states a part of the estate tax otherwise payable to the federal government, was phased out between 2002 and 2005 and replaced by a deduction for state estate taxes in 2005.
§ The gift tax was not repealed, and the unified credit exclusion has remained at $1,000,000 for gift tax purposes despite the increases in the estate tax exclusion
This benefits everyone. Elimination of the Bush tax cuts will hurt everyone in this category.
So overall, the middle class will be hit with huge tax increases should this bill be allowed to expire. And if you are a small business, you will really take a double hit. To me, these and the tax breaks for SMALL business should remain. The middle class cannot handle these tax increases on top of the raising of revenues(tax hikes) Obama wants to impose. Let's not forget the boatload of tax increases coming with Obamacare. After looking at what you will lose, do you still want to allow these breaks to expire?
You can read the entire bill here:
http://thomas.loc.gov/cgi-bin/query/z?c107:H.R.1836.ENR: - The 2001 Tax Cuts
http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.2: - The 2003 Tax Cuts
Use the Calculator to See how Much Your Taxes Will Go up When the Bush Tax Credits Expire
Bush Tax Cuts Calculator- http://interactive.taxfoundation.org/taxcalc/
See how your income tax changes under different policy scenarios.
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