If Congress fails to extend the Bush tax cuts, the tax system will undergo the equivalent of unelective full-body surgery. Higher rates will hit every dollar earned from income and investment. Benefits from low-income people will fall. Taxes on rich families' inheritance will come roaring back. Over ten years, the effect on total tax income for the government would be in the trillions of dollars. Americans will miss out on a media tax cut of about $1,000, as this graph from the
So it's no surprise that Congress is working to avoid this tax hike, at least for some people, at least for some time. The Obama plan is to preserve the tax cuts for about 98 percent of Americans and let taxes on the rich rise to their higher, 1999-levels next year. But what happens if he and Congress fail to act, the same way they failed to extend the estate tax in 2009? What will change, and how?
Taxes can be confusing. So here's a simple slideshow primer from a recent presentation on the Great 2010 Tax Debate from the Tax Policy Center. Many thanks to Roberton Williams for permission to run the presentation on The Atlantic.