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Bush tax cuts 101: What changes could be in store for taxpayers?

If Congress does nothing, the Bush tax cuts expire at the end of this year. Here's a look at the options now being debated.

By Ron SchererStaff writer / September 13, 2010

House Minority Leader John Boehner of Ohio (shown here speaking Aug. 24 in Cleveland) said Sunday that if his only option for extending the Bush tax cuts was to extend them for those earning less than $250,000, then “of course, I’m going to do that.” Congress is expected to decide the issue this fall.

Mark Duncan/AP/File


New York

This fall, Congress will face a thorny political and economic issue: whether to extend the so-called Bush tax cuts.

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When Congress passed the tax relief act in 2001, the US Treasury had a surplus, which economists predicted would grow to $5.6 trillion 10 years down the road. Instead, the United States has an estimated deficit this year of $1.34 trillion. If the federal government extends all those tax cuts this fall and takes no other actions, America could be looking at $9 trillion or $10 trillion in accumulated red ink over the next decade.

Still, it appears that the political will exists to extend many of the tax cuts. On Sept. 8, in a speech in the Cleveland area, President Obama threw down the gauntlet to the GOP, saying that Democrats were "ready, this week ... to give tax cuts to every American making $250,000 or less.

On Sunday on the CBS show "Face the Nation," House Republican leader John Boehner of Ohio said he was still in favor of not raising taxes for all Americans. But, when pressed on whether he would hold middle-class tax cuts hostage to cuts for the wealthy, he said, “If the only option I have is to vote for those at 250 (thousand dollars) and below, of course, I’m going to do that.”

However, Don Stewart, a spokesman for Senate Republican leader Mitch McConnell of Kentucky, said there are no Republicans in the Senate who support the partial tax cut extension, the Associated Press reported on Monday.

Unless Congress acts, almost all the tax cuts or credits, which were enacted in 2001 and 2003, expire at the end of this year. Some Americans filling out their taxes in April 2012 would discover they owe Uncle Sam additional money. At the same time, married couples would go back to paying a "tax penalty." Next year, almost all workers would see their employers withhold more of their earnings.

What is scheduled to expire at the end of this year, unless Congress acts?

•The 10, 25, 28, 33, and 35 percent rates would all rise. The new tax rates would be 15, 28, 31, 36, and 39.6 percent. This would cost taxpayers about $157 billion per year.

•The indexing of the alternative minimum tax for inflation would end. The AMT, which provides $66 billion in annual relief for taxpayers, attempts to ensure that individuals who benefit from itemized deductions or credits pay a separately calculated minimum tax.

•Taxes on capital gains and dividends would rise, meaning that investors could potentially pay about $35 billion more.

•Married couples would go back to paying higher rates than today, at a cost to them of $32 billion per year.

•Expanded tax credits – such as the child tax credit, which went from $500 to $1,000 – would end. This would cost families $26 billion per year. Some taxpayers would also pay an additional cumulative $1.5 billion in education costs.

•The estate tax, which has already expired, would go back to its 2009 level, costing heirs at least $26 billion.

•Higher-income households would see the dollar value of their personal exemptions phased out and would have a lower value for certain itemized deductions. This would cost those people – most of whom make well over $170,000 a year – about $21 billion.

How have the tax cuts affected Americans' income?