Are Today's Tax Cuts Tomorrow's Tax Increases?


Next up on Washington's list of Economic Things to Fight Over: the Bush tax cuts. The cuts were passed as temporary measures in 2001 and 2003, and they're set to expire at the end of this year. Congress is trying to figure out what to do.

What's the fight over?

Republicans and Dems agree that the cuts should largely remain in place next year for most people.

But the Obama administration and many Congressional Dems want to allow the cuts to expire for families making more than $250,000 a year. That could raise nearly $500 billion over the next 10 years, according to one estimate.

Republicans, and some Congressional Dems, want to extend the tax cuts for the wealthy as well.

The FT quotes Kent Conrad, a Senate Democrat: "The general rule of thumb would be you’d not want to do tax changes, tax increases . . . until the recovery is on more solid ground."

What are the details?

This being tax policy, the details get very wonky very quickly. Among other things, the top income tax rate for high earners would increase from 35 percent to 36.9 percent, and capital gains taxes would rise from 15 percent to 20 percent for many people.

The Tax Foundation explains a lot more here. If you really want to know what the whole thing means for you, you can plug your data into this rather complex tax calculator, which will tell you what your taxes would be under various circumstances.

Are they really tax cuts?

People have definitely paid lower taxes in recent years because of the changes to the tax law.

But Barry Ritholtz argues that because the changes were accompanied by bigger government deficits, they weren't truly tax cuts — they just shifted the tax burden from the present to the future, when those deficits will have to be paid back.

"In other words, all unfunded tax cuts — including these — are actually future tax increases on the next generation," he writes.

Source: NPR News