Updates to Bush Tax Cuts Calculator

July 26, 2012

Congress recently voted on two specific proposals dealing with the imminent expiration of the Bush-era and stimulus bill tax provisions.  The Republican bill (H.R. 8, the “Job Protection and Recession Prevention Act Of 2012”), likely to pass the House next week but die afterwards, extends all of the Bush-era provisions but not the additional tax cuts enacted in 2009 as part of the stimulus bill. The Democratic bill (S. 3412, the “Middle Class Tax Cut Act”), passed by the Senate but likely to die in the House, extends all the 2009 stimulus cuts still in effect but lets the Bush-era tax cuts expire for upper income families (with adjusted gross incomes over $267,000 for married filers and $212,600 for single filers.)

The stimulus bill provisions that are extended in the Democratic bill but not the Republican one are generally refundable tax credits targeted towards low-income filers; these include an additional expansion of the refundable portion of the child tax credit (even beyond the expansion from the Bush-era tax cuts), an expansion of the Earned Income Tax Credit “plateau” for married filers (again, beyond the previous expansion in the Bush-era tax cuts), and the replacement of the nonrefundable Hope credit for college students with the larger and refundable American Opportunity credit.

We’ve updated our interactive tax calculator at www.mytaxburden.com to reflect these new policy scenarios. The left column (“Republican Proposal”) assumes passage of H.R. 8 (full extension of Bush tax cuts but not stimulus bill ones), as well as repeal of the health care bill (which includes new payroll taxes on high income earners scheduled to go into effect next year) while the right column (“Obama Proposals”) assume that the changes proposed in President Obama’s budget are adopted: extension of the stimulus bill provisions as well as the Bush-era tax cuts, but only for filers making under the thresholds.

Very low-income filers, as well as filers receiving tax credits for college tuition, are likely to do better under the Obama/Democratic plan; very high-income filers are likely to do better under the Republican plan. For the vast majority of people, income tax liability will be the same under both plans. This is true even for plenty of filers making over Obama’s thresholds, because they are designed to be the minimum possible amounts at which a taxpayer could possibly see a tax increase, not the amount where a taxpayer would definitely pay more. A lot of filers in this range owe AMT, which was not changed by the Bush tax cuts – instead, its parameters are changed every couple of years via “patches” passed by Congress. (We consider the AMT patch to be a separate issue from the Bush-era tax cuts, so we assume that one will be in effect next year under all scenarios, even full expiration, but it can be disabled by hovering over the column title and clicking on the “X” next to “Permanent AMT patch in 2012.”) Such filers should care deeply about an AMT patch, but as long as their AMT liability is higher than their regular tax liability, the potential expiration (or lack thereof) of the Bush-era tax cuts won’t affect them one way or the other.

To see a table of tax parameters and rates under each scenario, click here.

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