Waiting for Congress on Expiring “Bush Tax Cuts”

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Title:
Waiting for Congress on Expiring “Bush Tax Cuts”
Date:
November 1, 2010
Publication:
From the November 2010 Riker Danzig Tax and Trusts & Estates UPDATE
Author(s):
Area(s) of Practice:
Estate Planning & Administration, Tax Law

The two major pieces of tax-cutting legislation enacted during President Bush's administration were the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), often collectively referred to as the "Bush Tax Cuts." If new legislation is not enacted, many of the tax benefits contained in these bills are due to expire on December 31, 2010, which would affect all taxpayers. Among the more significant changes that would occur on January 1, 2011, if these provisions were permitted to expire, are:

 

  • Marginal Income Tax Rates: Marginal income tax rates would increase from 10%, 15%, 28%, 33% and 35% to their former levels of 15%, 28%, 31%, 36% and 39.6%.
  • Capital Gains Rate: The maximum rate on long-term capital gains would increase from 15% to 20%.
  • Dividends Rate: The maximum rate on qualified dividends would increase from 15% to the taxpayer's marginal income tax rate (maximum of 39.6%).
  • Marriage Penalty: The so-called "marriage penalty" would return as it existed before it was mitigated by EGTRRA and JGTRRA. The marriage penalty refers to the situation where certain married couples filing a joint return pay higher income taxes than if they were unmarried and filing as single persons.
  • Child Tax Credit: The child tax credit would drop from $1,000 to $500 per child, and the number of families eligible to receive the credit would decrease.
  • Phase-outs: The phase-outs of the personal exemption and for itemized deductions, which were eliminated, would return.
  • Wealth Transfer Taxes: The estate and generation-skipping transfer taxes (which had a $3,500,000 exemption and a 45% maximum rate in 2009, and are currently repealed for 2010) would return with a $1,000,000 exemption (indexed for inflation in the case of the generation-skipping transfer tax) and 55% maximum rate. The maximum gift tax rate (which was 45% in 2009 and 35% in 2010) would increase to 55%.

During the post-election "lame duck" session which begins November 15, Congress will continue to debate whether to extend the expiring tax cuts. Our future Updates will discuss legislative changes, if any.