When Did Extending A Tax Rate Become A Tax Cut?

Late last week, congress finally passed a two-year extension to our current tax rates. The current rates, established in 2001 and 2003, also known as the Bush Tax Cuts were originally passed with a sunset provision, allowing them to expire at the end of 2010.

While a two-year extension is not ideal from a business perspective, it is certainly better than a sudden tax increase on January 1, 2011. Raising taxes while our country is in the midst of recovering from a recession could have been devastating.

Perhaps one of the most frustrating aspects of this debate is the rhetoric being used in Washington, referring to this as a tax cut. Maintaining a current tax rate is not a cut. In fact, by not acting, congress would have been imposing a sudden tax hike upon the American people.

Failure to pass this extension would have increased taxes for all Americans taxpayers. The current rates went into effect in 2001 with the passing of the Economic Growth and Tax Relief Reconciliation Act. Then in 2003 the Jobs and Growth Tax Relief Reconciliation Act was passed, essentially amplifying and closing holes in the first bill. After 2003, both of these acts together have typically been referred to as the Bush Tax Cuts.

Between 2003 and 2008, tax revenues jumped from about $800 billion to about $1,200 billion, silencing may critics who claimed the cuts would cost the government billions in revenue. Even so, extending the cuts another two years took a fight to the very last minute. The compromised extension was passed by the senate on December 15 and subsequently by the House near midnight on December 16. President Obama finally made the extension official with his signature on December 17, 2010.

If not for the persistence of a few legislators to get this done, our taxes would have been increased on New Year’s Day, a holiday gift from our outgoing, lame duck congress. Yet some in Washington still refer to it as a tax cut. Only in Washington does such rhetoric make sense.

2017-06-08T11:42:19+00:00 Government Policy|