Following news coverage can be easy. Understanding some of the terms it uses, less so. In our Flashcard series, The Atlantic
explains ideas you may read about but never see spelled out. In this
installment, we dig into the case for and against the Bush tax cuts.
The 2001 and 2003 tax cuts signed by President George W. Bush are scheduled to expire in the final seconds of this year. President Barack Obama promised to extend the cuts for 95% of American families who make less than $250,000 a year. But the recession and the weak recovery has emboldened two groups: Republicans who want to extend the whole thing and economists who want to kill it for good.
It seems that everybody in the country has a strong opinion about what to do with the Bush tax cuts. But what do they actually do? Whom do they benefit? And what should we do about them?
What we now call the "Bush Tax Cuts" were two separate bills. One passed with bipartisan Senate support in the mild downturn of 2001. The second scraped only with the tie-breaking vote of Vice President Dick Cheney in 2003.
The laws made deep changes to the U.S. tax code. Most commentators focus on how they helped the "rich" -- by slashing the rate on income and capital gains, and by "patching" the Alternative Minimum Tax to spare upper middle class families from paying more under a parallel tax code.
But in reality, they did much more. They cut every income tax rate by three percent. They carved out a new bottom bracket at 10 percent. They cut, and cut, and finally killed (for one year only) the estate tax. They doubled the child credit, reduced the marriage penalty, and expanded tax incentives for education. If the tax cuts expired in December, average tax rates would rise across the board, costing the median tax payer more than $1,000.
The following charts from the Tax Policy Center show how the death of the Bush tax cuts would increase your tax burden. In the first image, middle class relief is marked in green. In the second image, Obama's plan would rescind most of the policies colored in blue.
The expiration of the Bush tax cuts was always going to be controversial, but a high deficit and weak economy have made the issue downright explosive. Extend the full tax cuts, and you increase our dangerous debt by as much as $3 trillion over ten years. Eliminate them, and you could pull the rug out from under our wobbly economy. What's a Congress to do?