What End of Bush Tax Cuts Means for You
May 29, 2012
The so-called Bush tax cuts are scheduled to expire at the end of this year. While these cuts have been characterized by the Obama administration as being largely beneficial to the wealthy, this is a mischaracterization. Rather, the package of tax cuts contains tax-alleviating assistance for broad portions of the population. Thus, letting them expire would have numerous negative consequences, says Yahoo! Finance.
First, there would be higher income taxes for all (not just the wealthy).
- The existing 10 percent bracket will go away and the lowest "new" bracket will be 15 percent.
- The existing 25 percent bracket will be replaced by the new 28 percent bracket.
- The existing 28 percent bracket will be replaced by the new 31 percent bracket.
- The existing 33 percent bracket will be replaced by the 36 percent bracket.
- The existing 35 percent bracket will be replaced by the 39.6 percent bracket.
Second, there would be higher capital gains and dividends taxes for everyone.
- Currently, the maximum federal rate on long-term capital gains and dividends is only 15 percent.
- Starting next year, the maximum rate on long-term gains is scheduled to increase to 20 percent and the maximum rate on dividends will skyrocket to 39.6 percent.
- Furthermore, the unbeatable zero percent rate that currently applies to long-term gains and dividends collected by people in lowest two rate brackets of 10 percent and 15 percent would increase to 10 percent on gains and 15 percent and 28 percent on dividends.
Third, the expiration of the cuts would increase the marriage penalty, which can cause a married couple to pay more in taxes than when they were single.
- Right now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as for singles.
- Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many.
- Currently, the standard deduction for married joint-filing couples is double the amount for singles.
- Starting next year, the joint-filer standard deduction will fall back to about 167 percent of the amount for singles.
The expiration of the cuts will also see the return of the phase-out rules for itemized deductions and personal exemptions.
Source: Bill Bischoff, "What End of Bush Tax Cuts Means for You," Yahoo! News, May 16, 2012.
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