Letting Tax Cuts Expire — What it Actually Means

By March 5, 2008Taxation

From today’s Washington Post, reporting on the new Senate Democrats’ budget proposal:

The spending would push the federal deficit to more than $350 billion in fiscal 2009, but Senate Budget Committee Chairman Kent Conrad (D-N.D.) said the blueprint would erase the deficit within four years, producing a $160 billion surplus in 2013.

To get there, however, Democrats assume all of President Bush’s first-term tax cuts would expire on schedule in 2010, bringing in billions in revenue. But if the most popular tax measures were extended, as the two Democratic presidential candidates have promised, the surplus would all but evaporate, Conrad said.

So, what are those popular tax measures? Here’s a quick list:

  • The Child Tax Credit will shrink from $1,000 to $500 per child.
  • The 10 percent bracket will be eliminated, raising the income tax burden of many workers by 5 percentage points.
  • Income tax rates will increase between 3 and 4.5 percentage points in each bracket for all income earners.
  • Marriage penalty relief will be eliminated resulting in adverse tax treatment for double income earners.
  • Capital gains tax rates will increase to 10 or 20 percent depending on income.
  • Dividend taxes will double from the current capital gains tax rate to the individual income rate.
  • The estate tax will go from zero in 2010 to 55 percent in 2011, and the exemption rate will drop to $1 million (which is less than it is today).
  • That’s a tough list to choose from…

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