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Tax cuts turn 10

By Kay Bell · Bankrate.com
Tuesday, June 7, 2011
Posted: 4 pm ET

Ten years ago today the Bush tax cuts became law. 

They were part of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the key tax provisions were:

  • Creation of the 10 percent tax rate for the first few thousand dollars of earnings.
  • Cuts in the existing top four income tax rates, topping out at 35 percent instead of the then-maximum rate of 39.6 percent.
  • Elimination of the federal estate tax (for the 2010 tax year only).
  • A cut to the tax penalty that affected some married couples filing joint returns.
  • An eventual doubling (to $1,000) of the child tax credit and revisions to make part of the credit refundable to more families.

 The tax law changes also popularized the practice of tax rebates. In 2001 single taxpayers got a $300 check, single parents got a $500 check and married couples received a $600 check. This immediate tax cash system spoiled us for other tax-break distribtution methods, such as the Making Work Pay credit.

The key to getting all these changes through Congress was the bill's sunset clause, which called for the tax laws to revert to pre-2001 levels at the end of 2010.

We all know what happened last December. The Bush-era tax cuts have now become the Obama tax cuts, since the president who inherited them agreed, under pressure from the resurgent Republicans sent to Capitol Hill after the midterm elections, to keep them in place until Dec. 31, 2012.

So where do we go from here?

Obama has sworn that he will not allow the tax cuts that benefit primarily the wealthy, now defined as families making more than $250,000, to continue past next year.

We shall see.

The current tax system is under increased scrutiny as lawmakers struggle with the fiscal year 2012 budget and the impending federal debt ceiling limit.

Politics have polarized the sides, but the reality is that Uncle Sam simply cannot make enough cuts to make a substantial dent in the debt. Tax increases -- or, to be technically correct, a resumption of the pre-Bush tax rates or something similar -- will be required.

Will representatives and senators have the stomach to make us pay more? Not likely.

Until we give Congress the OK to do its job, it won't. So we taxpayers must summon the courage to tell our lawmakers, "Yes, you can raise some taxes."

It's hard to do that, though, given the tax rhetoric making the rounds.

Tax-cut advocates continue to insist that the law changes boosted the economy. Data doesn't support that contention. During the decade after the Bush tax cuts were enacted, growth in investment, gross domestic product, or GDP, and employment all posted their worst performance of any postwar expansion.

Small-business success also is repeatedly cited as dependent on keeping the top income tax rate low. But a Tax Policy Center analysis found that only 1.3 percent of filers with small-business income, which in most cases is reported as part of the business filer's personal income tax return, make enough to benefit from the 35 percent rate.

In reality, the 10-year-old tax cuts have mostly helped those at the top of the income and economic food chain. And while we'd all like to one day join them at the tax banquet up there, most of us are muddling in the middle and will likely stay there.

So now, as we are staring at government default and dealing with an increasing unwieldy tax system, is the time to get real about taxes. That means raising some, including -- especially -- those at the top which have allowed a few folks to benefit the most over the last decade.

That would be the best tax cut anniversary present for all taxpayers.

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2 Comments
Geno
June 08, 2011 at 11:37 am

Quote: "So now, as we are staring at government default and dealing with an increasing unwieldy tax system, is the time to get real about taxes."

I would have much preferred a statement like "Get real about government spending". I believe that spending is our biggest problem and should be dealt with first and immediately. At the VERY LEAST the two items should be attacked in tandem. But no mention of out of control spending just weakens your article.