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Tax Rate Comparison: Extend the Tax Cuts?

This article was written by in Taxes. 10 comments.

The government is currently tackling the question of whether to extend or end the Bush era tax cuts, and to what extent to do so. President Obama would like to end the tax cuts for the wealthiest Americans. Many Republicans want to make Bush’s tax cuts “permanent.” (Let’s all agree that there is no such thing as “permanent” when it comes to tax laws.) Economic experts like Alan Greenspan suggest ending the tax cuts for all Americans to help ensure the country’s fiscal health in the long term.

Here is an overview of what the tax rates might be under these scenarios, as well as a historical comparison, including 1987, the first year the brackets were simplified, and 1980, before the tax changes that occurred under President Reagan.

Remember that this is a system of marginal tax rates; the rate on each level of income is paid only on the excess income earned over the threshold of the previous level. You don’t pay the highest rate on your full income. That’s explained here.

Bush era Obama’s plan Cuts expire 1987 1980
Income 10% 10% 15% 11% 0-16%
15% 15% 22-24%
25% 25% 28% 15% 26-59%
28% 28% 31% 28% 63%
33% 36% 36% 35% 68%
35% 39.6% 39.6% 38.5% 70%
cap gains
(0% for some)
15% for most (0% for some);
20% for high-income fliers
(10% for some)
* *
Dividends 15%
(0% for some)
15% for most (0% for some);
20% for high-income fliers
Ordinary income tax rates * *

* Capital gains and dividends taxed as ordinary income.

Should the current tax cuts be made permanent, extended for all with a sunset provision or extended for some such as the middle class? Share your thoughts in the comments below, but register for a Consumerism Commentary account to earn points for your comments.

Sources: 1, 2

Published or updated September 24, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar Smithee

When the deficit is at zero, and all the roads and bridges and schools and other federal programs are in perfect shape, then we can talk about low taxes.

Until then, I hope Congress comes to their senses, finds a way to explain marginal and effective tax rates to people, and raises my taxes.

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avatar Tristan

I agree with Smithee. Sure, raise taxes back up, but don’t raise spending up with it. Eliminate the deficit. ASAP.

Also, off topic Flexo: I cannot get the Image Validation for the registration to work. All of the characters I put in are somehow incorrect. Even though they clearly are not. Just FYI.

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avatar Steve

I would like the debt to be paid off and the infrastructure to be improved too. Though, I don’t fully trust the government to do that with the money.

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avatar Dan

how about simplify the tax code. say repeal 5% of the code to simplify and reduce compliance and prep costs…

or repeal 100% and use a flat tax with a refund of the tax for the poverty level…
2 reasons that would never work tho.
- Government would actually have to tell us how much it’s taking. (this year the tax is 29% for example) and
- Government could not incent us through the tax code to do what Gvt want us to do. (buy a home, use alternate fuel, not grow corn, etc)

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avatar jim

Side note: One important detail when looking at the brackets over history is that the different bracket levels hit different income levels. For example in 1980 the top 70% bracket started around income of $215,400 for a married couple. That is about 12 times the median income level in 1980. Today that level of income would be around $720,000. Then by 1987 the 38.5% bracket started at income of $90,000 or about 4 times median income. Today the top bracket is at $373,650 or more which is more like 6 times median income. So you can’t look at the bracket %’ marginal rates alone and assume the top rate applies to the same income levels.

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avatar Apex

I think it would have been a better comparison if you had used 1988 instead of 1987. In 1987 the final Reagan tax cuts were only partially phased in. The full rates went into affect in 1988.

Those rates left only 2 (or 3 depending on how you look at it) brackets.

There was a 15 and a 28 and for income between about 70 and 150K a 33% was stuck in there and then it dropped back down to 28. It’s a strange bubble bracket in the middle and I don’t know the reason for it but thats what it was.

Then in 1990 The First President Bush raised taxes and that created a 15%, 28% and 31% bracket. It might look like a decrease but the 31% applied on all income so it was actually a increase but only on the highest incomes.

Now as to the current taxes, everyone is talking about cutting taxes and I like tax cuts. But I also like math and we have some serious math problems that cannot be solved by spending cuts alone. It’s also worth noting that the Obama plan raises only an extra 70 Billion or so per year and we have a 1.5 Trillion dollar deficit. Repealing all the Bush tax cuts results in numbers I have seen anywhere from 270 billion to 370 billion per year in increased revenues.

Raising the taxes on just the rich might sound fiscally responsible but only in the way that paying the minimum on your credit card is responsible. It just doesn’t really do anything.

We should suck it up and realize that we simply cannot afford taxes at our current level if we don’t want to eventually get to a Greece type austerity problem.

It’s also worth noting that the popular idea that the rich can pay for everything and that the rich always get all the tax cuts should be easily put to bed by the numbers for the Bush tax cuts above. The rich appear to be getting somewhere between 19% and 26% of the Bush tax cuts. All income tax payers got nice cuts from the Bush tax cuts. And if they truly were a bad idea, then why do we now think that only the people who got around 20% of the cuts was a bad idea? Probably because we like the extra money we got. Tax increases are so extremely unpopular that I can’t see them actually ever repealing the Bush tax cuts (except for the very top brackets). I mean look at the very meager tax increase I show above for the first President Bush and he got removed from office for a bad economy and breaking his no new taxes pledge. That lesson is still remembered by many and they don’t want to repeat his unpopular political move.

Repealing the entire Bush tax cuts would be a good first step to getting our fiscal house in order but even that is not enough. Something has to be done about Social Security and something rather drastic has to be done about Medicare. Part D should be repealed as well but that will never happen. The new health care plan expands part D. We do not have the courage to face our fiscal imbalances so we will likely continue to kick the fiscal can of worms down the road until it’s too big and we break our foot trying to kick it. Then we will have to face the pain.

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avatar Marie

We really need a do over on the entire income tax code!

Citizens consent to be governed to provide for those shared services and goods deemed necessary for the welfare of ALL citizens (as opposed to welfare programs for some of the citizens). To that end, taxes are necessary to finance those shared services and goods.

What is not necessary is the complex mess of a tax code we now have. Assuming income tax stays in place, a simple percent – applied to all wage owners at the same rate – would be much cleaner and less manipulative than what we have now. Of course this doesn’t address all the other kinds of taxes we suffer (sales, estate, real estate, personal property and on and on).

Elimination of programs which do not benefit ALL citizens and consequent reduction in taxes would be ideal (and way too idealistic to ever happen). Barring that, a permanent reduction in taxes across the board would be my vote. That would need to be accompanied by a change in tax spending – to spend money on projects that would yield more money in the future, to give us a chance to be fiscally fit.

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avatar Cass

“This is an impressive crowd: the Have’s and Have-more’s. Some people call you the elites. I call you my base.” ~ George W. Bush

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avatar Judy

Tax cuts for the (shrinking) middle class should be extended for another year (2011 only). Tax cuts for the wealthy should stop…allowed to expire this year. Kudos to Patriotic Millionaires for Fiscal Strength who have contacted Pres. Obama & said “tax us.” They’re willing to do their share to help our less fortunate Americans during these tough economic times. The wealthy one$ who want tax break$ to remain for them are just plain greedy.

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avatar Bajageoff

By my arithmetic, if the Bush tax cuts are allowed to expire on incomes over $250,000, someone earning $350,000 will pay an extra $3,000.
If that is the case, I find it absolutely amazing that there is so much intransigence on the part of the GOP, to the extent of causing a potential crisis leading to the credit rating downgrade.
And those who claim that business is not employing people because of uncertainty over what their taxes will be are either disingenuous or self deluded. I was a business owner for 25 years and a prospective rise in taxes of such a minimal impact would not have been given a thought in a decision over whether to hire.
By all means amend the tax code and get rates down overall. But digging your heels in over the issue of these marginal marginal changes is irresponsible. And if there is one thing President Obama has a mandate for it is not extending the Bush era tax cuts on the wealthy.

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