Tax cuts could soon end

Former President George W. Bush’s tax cuts and the 2009-11 Congress have something in common — both are due to expire by the end of this year. Unless Congress votes to maintain the largest tax cuts in history will become extinct Dec. 31.

The Bush tax cuts, which were passed in 2001 and 2003, have become one of the focal points of November’s midterm election. With the economic recovery looking bleak, the expiration of the tax cuts is especially controversial to this year’s election, according to the Wall Street Journal.

Congress has three options regarding the imminent expiration of the Bush tax cuts. It can do nothing and simply let the tax cuts expire, vote in the Obama Administrations plan or vote in the Republican plan (which equates to keeping the tax cuts as they are).

President Barack Obama’s proposed plan would result in the largest tax increase in U.S. fiscal history.

President Obama’s tax plan extends the 2001 and 2003 tax relief for all families that earn less than $250,000 a year ($200,000 a year for singles), according to Ryan Donmoyer of Businessweek.com However, his plan increases taxes on wealthy families, small businesses, and investors whose income is above the $250,000 threshold.

Congress’ decision on the current tax policy will mark the most significant tax debate of the past 50 years. Each Congress for the past 14 years has voted consistently to decrease taxes for the American people, according to the Heritage Foundation.

If Congress chooses to do nothing, Americans would pay five or ten percent more in taxes than in past years.

“This translates to the government having more money and families having less money,” Director of Policy and Communication at the Tax Foundation Bill Ahern said.

“Whenever a family has to cut its budget, they will discover that they will cut a purchase that will hurt someone in the family. For some this could mean forgoing paying college tuition or purchasing textbooks. Textbook rental companies such as Chegg could see an increase in profit margins as a result of the expiration of the Bush tax cuts,” Ahern said.

The Bush tax cuts are not the only tax relief item set to expire on Dec. 31. The Obama “American Opportunity” tax credit, which gives families $2,500 to apply towards college tuition costs that have an annual household income under $160,000 also ends on Dec. 31.

The child tax credit maybe affected as well. In the past, their parents have had the benefit of claiming each child 16 and younger as a dependent and receiving a $1,000 tax credit.  According to Ahern, that policy will not end but will be cut in half. In 2011, parents will receive a credit of $500 for each child age 16 and younger, said Ahern.

“In order to soften the blow for parents it is best if college students file as a dependent on their parent’s tax forms.  The parents of college students will receive more of a financial benefit if students file as dependents than the student would if they filed independently,” Ahern said.

Although a tax increase would negatively affect American families, the increase on taxes for small businesses will have the harshest effect on the economy as it will eliminate certain jobs and will eliminate the need to create new jobs.

Locally, small business owners are aware that the days of the Bush tax cuts may be numbered but they are not overly concerned.

“Times have been difficult, but we have not had to lay off people or put a freeze on hiring new employees. We are aware that the Bush tax cuts may expire but we are not anticipating hard times because of it,” owner of the Depot Grille Dave Poole said.

The Muse Coffee Company is locally owned and affected by taxes on small business.

“A large percentage of our staff is college students. Fortunately, we have not had to lay off or fire any employees as a result of the poor economy. If the Bush tax cuts are repealed only time will tell how that will affect the Muse,” Muse owner Brian Wynn said.

Conn Carroll, a blogger for the Heritage Foundation, noted that allowing taxes to expire would negatively affect small businesses which would be detrimental for economic recovery.

“Research on the last seven recessions shows that small businesses generate about two out of every three new jobs during recoveries. Hitting small businesses with tax increases would kill this job growth,” Carroll said.

According to a Gallup Poll, the majority of Americans are in favor of allowing the tax cuts for the wealthy to expire. While 37 percent of Americans are in favor of keeping the tax cuts for all Americans, 44 percent want them extended only for those who make less than $250,000 and 15 percent of Americans are in favor of the tax cuts expiring completely.

Certain GOP leaders are not in the Gallup Poll majority who are in favor of allowing the tax cuts for the wealthy to expire.

“I cannot vote for and should not vote for a tax increase, because if you leave out the investor and the person who brings capital to the table, you cannot grow the economy, and we will continue to have joblessness,” Representative Pete Sessions of Texas said.

Curtis Dubay, a Senior Policy Analyst of the Heritage Foundation who specializes in tax policy argued that if the Obama plan is put into place it will have severe and enduring economic consequences for Americans.

According to Dubay, Obama’s plan will retard economic growth in the midst of an already struggling economy, keep unemployed persons from returning to work or finding other employment, cause more Americans to lose their jobs and finally permanently slow down economic growth lowering Americans’ standard of living.

“Congress does not have to vote on the tax cuts. They will expire automatically, whether or not Congress puts the issue to a vote will depend on what happens on Nov. 2,” Ahern said.

BELL is a news writer.