• Heritage Action
  • Heritage Libertad
  • More
WebMemo #486 on Taxes and Tax Cuts

April 21, 2004

When Would the President's Tax Cuts Expire?

By

In 2001 and 2003, President George W. Bush proposed and Congress passed a series of tax cuts to reinvigorate the economy and reduce the government's burden on workers' paychecks. Because of opposition to these measures from some in Congress, they were implemented as temporary tax cuts, all of which will expire by January 1, 2011. The uncertainty of their future has an effect on present-day spending by businesses and individuals, who know that they may have to pay higher taxes in the future.

Today's economic recovery provides some evidence that the Bush tax cuts worked as intended. If Congress is serious about addressing economic growth and unemployment, it should make all of the 2001 and 2003 tax cuts permanent before the following expirations [1] can occur:

  • Child Credit: This Credit will shrink from $1,000 to $700 per child on January 1, 2005.
  • The 10 Percent Bracket: The upper income level for this bracket will decrease by $1,000 per filer on January 1, 2005.
  • The 15 Percent Bracket for Joint Filers: On January 1, 2005, the upper limit of this bracket will shrink from 200 to 180 percent of the upper limit of the 15 percent bracket for single filers, creating a marriage penalty.
  • Standard Deduction for Joint Filers: On January 1, 2005, this will shrink from 200 to 174 percent of the standard deduction for single filers, creating a marriage penalty.
  • Alternative Minimum Tax: Exemptions will decrease by $6,500 per filer on January 1, 2005.
  • Bonus depreciation: This provision, which changes depreciation schedules for businesses in a way that encourages investment, will expire on January 1, 2005.
  • Small Business Expensing: On January 1, 2006, the maximum amount that a business may deduct will fall from $100,000 to $25,000, which will not be indexed to inflation.
  • Capital Gains: Rates will rise to 10 or 20 percent, depending upon income, on January 1, 2009.
  • Dividends: Rates will rise to match standard income tax rates on January 1, 2009.
  • Child Credit: This Credit will shrink from $700 to $500 per child on January 1, 2011.
  • The Income Tax : Rates will increase between 3 and 4.5 percentage points in each bracket on January 1, 2011.
  • The 10 Percent Bracket: The bracket will be eliminated on January 1, 2011, raising the income tax burden of many workers by 5 percentage points.
  • The 15 Percent Bracket for Joint Filers: On January 1, 2011, the upper limit of this bracket will shrink from 200 to 167 percent of the upper limit of the 15 percent bracket for single filers, creating a marriage penalty.
  • Standard Deduction for Joint Filers: On January 1, 2011, this will shrink from 200 to 167 percent of the standard deduction for single filers, creating a marriage penalty.
  • The Estate Tax: The top rate for this tax will increase to 60 percent on January 1, 2011, and the value of an estate exempt from taxation will shrink to $1 million, which is less than it is today.
Andrew Grossman is Senior Web Writer/Editor at The Heritage Foundation.

Show references in this report

[1] The Executive Office of the President of the United States, "Analytical Perspectives," Budget of the United States Government: Fiscal Year 2005 (Washington: GPO, 2004), 240-246.

Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.


The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.


The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.


More than 200,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.


Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"


Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."


Sign up to start your free subscription today!