Tax Cut Politics

The recent politics surrounding the Bush-era tax cuts, put in place in 2001 and 2003, acquires significance in the backdrop of their expiry at the end of 2010 unless the Congress renews it. Many politicians and economists want the tax cuts to be extended for two more years to make sure the economic recovery gains on firm footing. However, President Barack Obama wants to extend the tax cuts for 98% of people who have incomes $200,000 or less for individuals and $250,000 or less for families, while doing nothing for the top 2% of the taxpayers. Under the Obama plan, letting the top tax rates to be hiked to 36% from 33% and to 39.6% from 35% would save $700 billion over the next decade. If all the tax breaks are allowed to lapse, in which 10% tax bracket will be abolished, 25% tax bracket will be increased to 28%, 28% to 31%, 33% to 36% and 35% to 39.6%, total savings will be $3.7 trillion over the next decade, including $3 trillion for the middle-class with incomes less than $200,000 for singles and $250,000 for families. If the Bush-era tax cuts are extended, the total costs over the next decade will amount to $3.9 trillion.