Some of the policies set by the Bush tax cuts included a marginal income tax rate reduction, the elimination of PEP and Pease exemptions and reductions, a reduction in taxes on capital gains and dividends, and the repeal of the estate tax. These changes were meant to be permanent but came with a 10-year expiry plan in order to get them through Congress.Continue Reading
The tax cuts primarily focused on providing immediate wage tax cuts for low- and middle-income earners by creating a 10 percent tax bracket and mailing all taxpayers a check for the year’s savings. This subsequently raised the protection bracket for middle-income families from the marriage penalty and raised the child tax credit.
The uncertainty about what would eventually happen to various tax cuts after the 10-year expiry made investing, planning, estate planning and other economic activities difficult to implement for many people. Congress reacted by passing legislation to extend the tax cuts for two years and also reducing the payroll tax.
According to the Washington Post, the Bush-era tax cuts drove the deficit and are believed to continue to be a major driver for federal budget deficits. These tax cuts also worsened income inequality by reducing capital gains rates and marginal tax rates; overall they benefited the wealthy at the expense of the poor. However, they also increased pay for middle-income workers.Learn more about Taxes