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15 October 2010


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The Bush Tax Cuts


The BUSH TAX CUTS consists of two major tax-cutting bills,  the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, and The Jobs and Growth Tax Relief Reconciliation Act of 2003.

These two laws cut taxes across the board for earned income, long-term capital gains and dividends. The legislation also expanded the child tax credit and made dozens of other changes and adjustments to the tax code, involving exemptions, deductions and the marriage penalty.

These are some of the key changes that impacts small businesses.


Tax Brackets:


            Tax Rates as of 2000:

                      0 -   26,250           15%

              26,250 -   63,550           28%

              63,550 - 132,600           31%

            132,600 - 288,350           36%

            288,350 - above              39.6%

            Tax Rates as of 2010:

                      0 -      8,375           10%

                8,375 -    34,000           15%

              34,000 -    82,400           25%

              82,400 -  171,850           28%

            171,850 -  373,650           33%

            373,650 -  above              35%


EGTRRA created six tax rate brackets--10%, 15%, 25%, 28%, 33% and 35%, based on income levels. If no extension is passed and signed into law, then the pre-2001 tax rates will go back into effect starting in tax year 2011. The 10% bracket would disappear, and those taxpayers would move up to the 15% bracket, which would apply to all incomes below $34,550. The other tax rates would increase to 28%, 31%, 36% and 39.6% for the highest earners making more than $379,650.

Child Tax Credit:
he child tax credit was doubled from $500 to $1,000 per child.

Capital Gains/Qualified Dividends:
The maximum tax rate on long-term capital gains and qualified dividends were also reduced from 20% to 15%, with lower income filers facing a 0% tax rate.

Marriage Penalty:
EGTRRA also eliminated the so-called "marriage penalty" and gave a married couple filing jointly a standard deduction twice that of a single filer. Tax rates were also adjusted for joint filers to remove the penalty.

Death Tax:

The Death Tax was eliminated.  The prior death tax rate was 55% on estates over $1 million.


These tax cuts, whether it be a lower tax bracket, higher Child Tax Credit, Lower Capital Gains tax rates, elimination of the Marriage Penalty, or elimination of the Death Tax all meant that Small Business owner get to keep more money that they can use to invest in their businesses in order to grow the business and hire more workers.  This is a key source of revenue at a time when small businesses find it difficult to obtain financing from lending institutions.  Most small businesses are financed by the personal finances of individuals.  Not Angel Investors, Venture Capitalists, Banks or Credit Unions.  If these tax cuts are reversed, even for those making over $250,000 it will have a negative impact on most small businesses.  Businesses that generate over $250,000 in revenues do business with other businesses that make less than $250,000.  If the have to pay higher taxes they will have less disposable income to do business with smaller businesses and expand their own business.


Sources:  Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, and The Jobs and Growth Tax Relief Reconciliation Act of 2003.


by Owen Daniels





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