President Bush's 2001 tax cut focused on immediate cuts in wage taxes for low- and middle-income people, especially: creating a 10% tax bracket and mailing each taxpayer a check for the current year's savings, raising the ceiling of the 15% bracket to protect middle-income couples from the marriage penalty, and raising the child tax credit from $500 to $1,000 and making it refundable.
The legislation did include tax cuts at the high end of the income spectrum, but those were scheduled to phase in over many years. The top income tax rate of 39.6% was only cut to 39.1% in the first year. No positive economic impact was noticeable during 2002, and pressure built for a supply-side tax cut. That was delivered in May of 2003 in the form of an acceleration of the 2001 phase-ins, plus a new 15% tax rate on capital gains (down from 20%) and a 15% rate on dividends (down from a high of 39.6%).
To comply with Senate budgetary rules, the tax cuts were enacted as 10-year temporary laws. President Obama campaigned against the Bush tax cuts vehemently during 2008, but did not attempt to hasten their expiration once he took office, citing the recession.
Uncertainty about what would happen to various tax rates after the tax cuts' expiration made tax planning, investing, estate planning, and other activities difficult for many taxpayers. Finally, in the last weeks of 2010, Congress passed legislation extending the tax cuts for two years and reducing the payroll tax.
Additional questions about the Bush-era tax cuts? Contact us at (202) 464-6200.
Last week, S.2320, a bill that would create Universal Savings Accounts in the federal tax code, was referred to the Senate Finance Committee. The bill, sponsored by Senator Jeff Flake and Representative Dave Brat, would...