In 2003, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act, known to most of us as the “Bush tax cuts.” Federal rates were lowered for individual tax rates, capital gains, dividends, and estate taxes. These cuts are set to expire at the end of this year. This is a hot topic that you will see plenty of people debating as we get closer to the November elections.
After 9/11 the US economy looked as if it was going to go into a major recession. People were scared and saving more and spending less. To spur growth the Chairman of the Federal Reserve, Alan Greenspan, dropped interest rates and the President was able to push tax cuts through Congress. These actions prevented a significant recession in 2003 and led to enormous growth in the stock and the real estate market.
At this point we find the USA suffering from the Great Recession started in 2008. We have already dropped interest rates as low as they can go and with our yearly deficit at an all time high, we are unable to cut taxes any further. The question is should we repeal the Bush tax cuts amidst this challenged economy or leave them be? The Left argues that with such a significant deficit we have no choice but to increase taxes. The Right recognizes this deficit issue but favors taxes to be left alone and the Federal government to lessen spending.
In my opinion, the right answer is for the Bush tax cuts to remain intact while the American economy is struggling. With an almost 10% unemployment rate, real estate prices dropping, possible deflation, and banks not lending, raising taxes right now is a death wish. How can our economy, which is primarily based on consumerism, grow if the government is taking more money out of our pockets? Raising taxes now would be like taking medicine away from a sick person.
The Left argues that taxes wouldn’t really be raised, they would just return to levels pre 2003. This is true but during the late 90s and up until 9/11 our economy was growing by leaps and bounds due to the dot-com revolution. Now our economy is barely breathing and its future is uncertain.
To keep you and your family healthy and happy you need to plan your economic future. Though I hope the Bush tax cuts don’t expire at the end of the year, it’s important for you to know how it is going to affect your budget if they do. Below are the tax rates pre and post 2003. If your budget is tight already, I suggest you take out a calculator and figure out how many fewer dollars you could possibly have to spend. This way you have prepared for the worst case tax scenario and if the tax rates stay the same, you’ll be happy and have some money saved.