Although its opponents decry the Job and Growth Tax Cut Relief Reconciliation Act of 2003 (also known as the Bush Tax Cuts) as "a tax break for the rich," the Act didn't just benefit the wealthy. The cuts also provided relief for married couples with children, small businesses and everyday average investors -- including those who chose to invest their 401K plans.
The tax cuts are scheduled to expire on Jan. 1, 2011 unless Congress and the president act to extend them.
The argument from many of the legislation's opponents has been that with deficits sky high and a rough economy getting worse, the federal government could use the money that would be generated by allowing the Bush Tax Cuts to expire. This means Democrats can raise taxes simply by doing nothing.
Conservatives believe extending the tax cuts is key to fostering job growth and healing a wounded U.S. economy. Even though the steady increase in job cuts had started to level off in the summer of 2010, American businesses still weren't hiring despite a modest spike in earnings. Many on the Left believed a lack of demand for goods and services was the impetus behind the business community's reticence to rehire employees. While this is partly true, the lack of demand was merely a side-effect of a bigger problem: economic anxiety among executives. Business leaders were uncertain about how new financial reforms coming from the Democratically controlled federal government would affect them in the long run.
While tax cuts weren't the only economic concern within the corporate world, the decision by Congress and the White House to either extend them or allow them to expire would provide the first clear evidence to the business community about the federal government's priorities. With no indication from the president or House and Senate leaders about what the ultimate decision would be, businesses couldn't relax. Rather than taking risks by hiring new employees, companies were holding on to every dollar as they braced for possible defacto tax hikes.
Clearly, the cuts benefited the wealthy, but if they were allowed to expire the subsequent tax burdens would be felt by everyone -- from corporations to working families.
The breakdown would go as follows:
- The 27 percent tax rate, which was reduced to 25 percent by the Bush Tax Cuts, would increase to 28 percent with no extension
- The 30 percent rate, which was reduced to 28 percent, would increase to 31 percent with no extension
- The 35 percent rate, which was reduced to 33 percent, would increase to 36 percent with no extension
- The 38.6 percent rate, which was reduced to 35 percent, would increase to 39.6 percent with no extension
The 10 percent and 15 percent tax rates were unchanged by the Bush Tax Cuts, but with no extension, the 10 percent rate would disappear altogether, meaning those formerly in the 10 percent bracket would be bumped up to the 15 percent bracket. This is the cut that will most affect American working families, because joint filers in the 10 percent bracket saw their bracket expanded by $2,000, from $0 to $12,000 of taxable income to $0 to $14,000. For singles and married persons filing separately, their bracket went up by $1,000, from $0 to $6,000 to $0 to $7,000. These changes were set to vanish in 2004, but Congress extended them. With no extension, everyone in the low 10 percent tax bracket would simply see their taxes rise by 5 percent beginning on Jan. 1, 2011.
As for the $1,000 child tax credit many American households enjoyed from 2003 to 2010, forget about it. Before the Bush Tax Cuts, this credit was just $600. If the cuts expire, the $1,000 credit will drop by $400 to its previous figure. This is one area where the wealthy do not benefit. Under the Bush Tax Cuts, wealthier households saw a reduction in the child tax credits they could claim after they earned $75,000, and those earning $110,000 or more were completely ineligible and couldn't claim the credit at all. When the revised child tax credit was set to expire in 2005, Congress again stepped in and extended it. This, too, would go away if Congress allowed the Bush Tax Cuts to expire in 2010.
Without a doubt the wealthy people and businesses enjoyed perks from the Bush Tax Cuts, but they weren't as alone as those on the Left would have everyone believe. Small businesses and American families were primary beneficiaries of the cuts as well.