November 19, 2005 | WebMemo on Taxes
When Would the President's Tax Cuts Expire?
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, the 2001 and 2003 tax cuts were implemented as temporary
measures, all of which will expire by January 1, 2011. In 2004,
Congress passed short-term extensions of several cuts, and in 2005,
Congress allowed one cut to expire. The uncertainty of the future
of the tax cuts has an effect on present-day spending by businesses
and individuals, who know that they may have to pay higher taxes in
Members of Congress may think that they can
return next year to make the tax rates on capital gains and
dividends permanent, but they should know that corporate executives
are deciding now what large-ticket, capital purchases to make over
the next several years. A key factor in those decisions, which fuel
this economy's growth and create jobs, is the tax rate on capital.
If Congress continues to delay making permanent the low tax rate on
capital, these executives will assume a higher cost of investment
and reduce their corporations' investments, to the detriment of the
Today's strong economy provides some evidence
that the Bush tax cuts worked as intended. If Congress is serious
about addressing economic growth and unemployment, it should make
the President's tax cuts permanent and reinstate those provisions
that have expired:
Bonus Depreciation: This provision, which changes
depreciation schedules for businesses in a way that encourages
investment, expired on January 1, 2005.
Alternative Minimum Tax: Exemptions will decrease
by $6,500 per filer on January 1, 2006.
Small Business Expensing: On January 1, 2008, the
maximum amount that a business may deduct will fall from $100,000
to $25,000, which will not be indexed to inflation. Also on that
date, the cap for the value of qualifying property will shrink from
$400,000 to $200,000, making it more difficult for small businesses
to take advantage of this deduction.
Capital Gains: Rates will rise to 10 or 20
percent, depending upon income, on January 1, 2009.
Child Credit: This credit will shrink from $1,000
to $500 per child on January 1, 2011.
The 10-Percent Bracket: This 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 for single filers, creating a
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.
The Income Tax: Rates will increase between 3 and
4.5 percentage points in each bracket on January 1, 2011.
Dividends: Rates will rise to match standard
income tax rates on January 1, 2009.
Andrew Grossman is Senior Writer and Editor at
The Heritage Foundation.