End of Bush Tax Cuts Will Impact All

President Obama and other Democrats have sought to vilify the Bush-era tax cuts as a benefit for the wealthy, but the scheduled expiration of the cuts at the end of the year would boost taxes for almost every American taxpayer.

If the cuts expire on Dec. 31, all tax brackets will rise, not just the top brackets, and taxes will increase on capital gains and dividends as well.

Taxpayers in the existing 10 percent bracket on earned income will rise to the 15 percent bracket. The 25 percent bracket will be replaced by a 28 percent bracket, the 28 percent bracket will rise to 31 percent, the 33 percent bracket will be replaced by a 36 percent bracket, and the existing 35 percent bracket will become a 39.6 percent bracket.

Currently the top rate on long-term capital gains and dividends is 15 percent. If the tax cuts expire, the top rate on long-term gains will rise to 20 percent (with a slightly lower rate for gains from assets acquired after Dec. 31, 2000 and held for more than five years), and the maximum rate on dividends will soar to the top percentage on earned income, 39.6 percent.

Long-term gains and dividends collected by taxpayers in the lowest two brackets, 10 percent and 15 percent, are not currently taxed. After Dec. 31, if the cuts expire, those taxpayers will owe 10 percent on long-term gains and at least 15 percent on dividends.

Expiration will also impact the so-called marriage penalty in several ways, raising taxes for married couples. For one thing, the standard deduction for married couples filing jointly is double the amount for singles. After the expiration, their deduction will drop to about 167 percent of the amount for singles, according to the SmartMoney website.

Former President George W. Bush said in April that the tax cuts he implemented in 2001 and 2003 helped lessen the effect of the Great Recession and should be continued.

“I think that keeping taxes low did help buffer a difficult economic situation,” Bush said. “And I think raising taxes is going to take capital out of the hands of those creating jobs.”

Sen. Jeff Sessions, the ranking Republican member of the Senate Budget Committee, recently told Newsmax that he believes Congress will ultimately extend the Bush tax cuts, but not before the presidential election in November.

“It looks like there will not be a vote until after the election, but I can’t say that for certain. It certainly looks like that,” predicted the Alabama lawmaker.

“That’s not healthy because we need certainty in our tax rate. There’s far too much uncertainty in our financial condition in America today.”