Bush Tax Cuts

What Are the Bush Tax Cuts?

The Bush tax cuts were a series of impermanent income tax relief measures enacted by President George W. Bush in 2001 and 2003. They happened through two bits of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA).

Understanding the Bush Tax Cuts

The Bush tax cuts included two separate measures that were passed to give tax relief to families in 2001 and to businesses in 2003.

The measures brought down federal income tax rates for everybody, diminished the marriage penalty, brought down the capital gains tax and the tax rate on dividend income, and increased the child tax credit.

They additionally killed several things, getting rid of personal exemptions for higher-income taxpayers and on itemized deductions. New limits were placed on the estate tax.

The Bush Tax Cuts for Families

The primary tax code change, officially known as the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, was an income tax relief measure that was intended to invigorate the economy during the recession that followed the bursting of the dot-com bubble — the sudden collapse of internet and digital technology stocks and the loss of trillions in investment dollars.

A portion of the benefits of the EGTRRA tax cuts included:

• Bringing down the maximum estate, gift, and generation-skipping transfer tax rate to half in 2002 from 55% in 2001, with an extra 1% reduction every year until 2007.
• Eliminating the time limit on student loan interest deductions for tax purposes.
• Permitting non-qualified 401(a), tax-sheltered 403(b), and deferred compensation 457(b) plans to be turned over to other non-qualified plans, qualified plans, or IRAs.
• Expanding the age for required least distributions (RMDs) and permitting employees beyond 50 years old to make extra contributions over the normal limits to their retirement plans.
• Introducing a new tax bracket of 10%. The 15% tax bracket was indexed to the new 10% bracket. Existing tax brackets of 28%, 31%, 36%, and 39.6% were reduced to 25%, 28%, 33%, and 35%, separately.
• Expanding the per-child tax credit from $500 to $1,000.
• Disposing of the marriage penalty by doubling the standard deduction for a married couple filing jointly, consequently taking out the tax liability for married couples.

The tax cuts were initiated to furnish families with more disposable income in the expectations that the extra funds would prod spending and pump money into the economy. Notwithstanding, numerous taxpayers saved or invested their refunds all things being equal.

The problem was that a significant number of the tax breaks gave a greater benefit to the top 20% of income earners than they did to middle and lower-income earners.

The Bush Tax Cuts for Businesses

The second change to the tax code was enacted in 2003. Called the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA), it was acquainted with give a series of tax cuts for businesses and to accelerate the tax changes passed in the 2001 EGTRRA. By placing more money in the pockets of businesses and investors, and empowering investment in the stock markets, JGTRRA meant to add more steam to the economy's recovery.

In particular, the JGTRRA:

• Reduced tax on long-term capital gains from 8% and 10% to 5%, and from 20% to 15%. Taxpayers in the 10% to 15% tax brackets had their capital gains tax reduced to zero out of 2008.
• Brought down taxes on qualified dividends — including bank dividends, real estate investment trusts (REITs), and income from non-unfamiliar organizations — to the long-term capital gains levels from the ordinary income tax levels.
• Accelerated a significant number of the tax provisions in EGTRRA, which had been scheduled to be deliberately worked in slowly. For instance, with EGTRRA, the new 10% marginal tax bracket was to grow to $7,000 and $14,000 in 2008 for single filers and married people filing jointly, separately. With JGTRRA, the expansion amounts produced results in 2003 rather than 2008.
• Increased the amount of income exempt from the Alternative Minimum Tax (AMT) to permit more taxpayers to pay tax at the customary income tax rate rather than the higher least tax rates.
• Increased the maximum amount that taxpayers can deduct quickly from the cost of a [tangible business property](/substantial personal-property) placed in service during the tax year from $25,000 to $100,000.

The Extension of the Bush Tax Cuts

The Bush tax cuts under EGTRRA and JGTRRA were scheduled to terminate in 2010 and 2008, separately. Notwithstanding, following the [2008 economic recession](/incredible recession), the tax cuts were extended to 2012.

In fact, the tax cuts were in place for such countless years that they started to feel permanent, and taxpayers and government officials raised a major outcry as their expiration date drew nearer. However the recession had technically ended, numerous Americans were all the while faltering from its effects.

With a fiscal cliff actually approaching over the economy, the cuts were saved from elimination when President Barack Obama marked the American Taxpayer Relief Act of 2012 in which the Bush tax cuts for single taxpayers with under $400,000 in income and married couples with under $450,000 were retained.

The people who wanted to let the Bush tax cuts lapse as scheduled contended that the government required the extra tax revenue in the face of its monstrous budget deficits. The people who wanted to broaden the Bush tax cuts or cause them permanent contended that higher taxes to reduce economic growth and smother business venture and incentives to work.

The Downside of the Bush Tax Cuts

The Bush tax cuts, combined with the war spending on Iraq, prompted a budget deficit from the reduction in tax revenues received by the government. In fact, the budget deficit for the fiscal year 2009 was $1.4 trillion, the biggest deficit relative to the economy since the finish of World War II.

Features

• EGTRRA (2001) was executed to support the economy during the recession that followed the website bubble burst.
• The Bush tax cuts incorporated a number of transitory income tax relief measures enacted by President George W. Bush in 2001 and 2003.
• The tax cuts in the two measures were scheduled to lapse in 2010 and 2008, separately, however were extended to 2012 due to the 2008 recession.
• JGTRRA (2003) gave a series of tax cuts for businesses and accelerates the tax changes passed in EGTRRA.