Bush-Era Tax Surviving Longer Than Many Others

June 27, 2011 by  Filed under: Taxes 

In June 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 that came to be known as the “Bush tax cuts”. The tax cuts were part of a drive by the Bush administration to stimulate economic growth after the Gulf War. These Bush cuts were passed into law as temporary tax rates that were set to last for 10 years. The taxes were passed as temporary because the government at that time was not sure of making the tax acts permanent. There were many disgruntled Senators, especially from the Democratic side, that were anxious to shoot down the bill. For a temporary tax code bill to pass into law, Congress needed only 51 votes. And since the government was confident of this number, they decided to pass the bill as temporary in status.

Since the preceding Clinton era taxes were permanent and those of Bush was temporary, it means that the budget baseline is to date, determined by the Clinton era code and not by the Bush rates. What this means is that the budget is drawn up with the assumption that the Clinton era tax code is still operational. Since the taxes raised under the Bush era are much less, the government has to borrow funds for the difference. As long as the Clinton era taxes remain as the most recent permanent rates, the budget will continue to be set based on them.

The Bush cuts introduced many credits and deductions and also placed a cap of the highest tax rate (at 35%), bringing it down from the Clinton era’s cap of 39.6% for the top tax rate. Many analysts have criticized the excess tax expenditure under the Bush tax cuts, considering it to be part of the cause of the large government deficit. The Bush tax cuts were to lapse in June 2011. However, a bipartisan compromise between both sides of Congress yielded an extension of the Bush tax cuts for another 2 years, to the end of 2012. The Democrats, led by Obama, are keen to see these cuts removed from after this extension, especially for the so-called “wealthy” taxpayers. Until such a change is made, the Bush tax cuts will continue to determine the taxpayers’ fates.

What is ironic about the Bush-era taxes is that they were passed as a temporary tax code, but have lasted for a longer duration than many “permanent” tax-eras. The Clinton tax era for example, was passed as a permanent tax code, but only remained in operation for 6 years (between 1994 and 2000). Other so-called “permanent” codes have even lasted for shorter periods. The first tax code that was passed as a permanent code lasted only for 2 years, between 1913 and 1915.

There have been many temporary and permanent tax eras that have come into operation since the enactment of the Tax Law in 1913. In fact, the tax code has changed 28 times since 1913, meaning that the average time frame of a tax era has been 3.5 years. Different tax eras have had different taxation rates with the top rate changing frequently over the years. The longest that a top tax rate has remained constant is for 17 years from 1965 to 1981, when the top tax rate was at 70%. The highest tax rate so far was 91%, which lasted for 9 years between 1954 and 1963 during the period of Kennedy and Cater.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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