Analyze the impact of the expiration of the Bush tax cuts on personal income tax rates Answer


From the second e-Activity, analyze the impact of the expiration of the Bush tax cuts on personal income tax rates. Take a position on whether the Bush tax cuts be extended on a temporary or permanent basis for individuals. Provide a rationale for your answer


Ans: The Bush tax cuts have the widest impact—affecting personal income, capital gains and dividends. Expiration of the Bush tax cuts would mean the taxes would increase for households and Middle-income households. A key goal of President Bush’s two tax cut measures, passed in 2001 and 2003, was to cap individual income tax rates at 35 percent. In 2010, this rate applied to individuals earning more than $373,650. Unless this provision is extended, the tax rate for the highest-earning Americans will move up to 39.6 percent next year. All lower brackets will also move to pre-Bush era levels. This means that for middle-income Americans, for example, an individual earning roughly $80,000 a year, the tax rate will rise from 25 percent to 28 percent.

In my view, Bush tax cut should be extended on temporary basis for middle income households especially when we still haven’t recoved from the economic recession. This would be good for the conomy as this would lead to higher disposable income and hiher consumption/demand for goods and services required for the economy at the moment.