Give me a (tax) break!

There have been a lot of talks about Bush tax cuts recently.  Now I must admit that before I really started following politics, I thought that Bush only helped out the wealthy.  And the reason why I thought that way wasn’t based on my own research, but basically on what other people said.  Everyone around me called Bush an idiot that didn’t like black people, so I called Bush an idiot that didn’t like black people.  When I started doing my own research in 2007, I found that Bush did help out working class families as well as the wealthy.  Now this isn’t a political blog to discuss the purpose of the tax breaks and whether or not they worked.  This is just to let you know what will happen next year if these cuts aren’t extended.

Brief History: In 2001, Bush signed The Jobs and Growth Tax Relief Reconciliation Act.  Basically this act was suppose to take 9 years to take full effect which offered tax breaks to everyone to some degree.  Your degree of tax break depended on your income along with other variables.  To explain tax brackets would take too long so let’s just crunch the numbers.  For individual income taxes:

• a new 10% bracket was created for single filers with taxable income up to $6,000, joint filers up to $12,000, and heads of households up to $10,000.
• the 15% bracket's lower threshold was indexed to the new 10% bracket
• the 28% bracket would be lowered to 25% by 2006.
• the 31% bracket would be lowered to 28% by 2006
• the 36% bracket would be lowered to 33% by 2006
• the 39.7% bracket would be lowered to 35% by 2006

In 2003, a second act was passed basically expediting those tax cuts so everyone got their tax breaks in 2003 instead of 2006.  So what does all that mean in dollars?  Well according to the Wall Street Journal, these are estimates if the tax cuts are not extended:

• A household making $40,000 would see its paychecks shrink by $95 a month if it had no children, $135 if it had one child and $165 if it had two children.
• A household making $80,000 would see its monthly paychecks shrink by $145 with no kids, $150 with one and $180 with two.
• A household making $100,000 would clear $270 less per month with no kids, $300 less with one and $335 less with two.

Now these cuts are set to expire by January 2011.  Benefit to that is that they estimate 700 billion dollars will be added to help the national debt.  The bad news is that you will be paying those 700 billion dollars to the debt.

During a recession, everyone tightens the way they spend money, including the government.  Now from a political aspect, it makes sense to extend the tax cuts and not further hurt the working class.  From a financially responsible standpoint, it makes sense to save as much money as they can.  Will they extend them?  It will depend on how much it is covered publically.  If the media doesn’t promote it and if we don’t question it as voters, they will just let this pass.  So, if you want to help the debt, don’t bring up the tax cuts.  If you want your money, make a big stink about it everywhere you go.  I know I am.  Keep people talking about it and Congress will be forced to act!

So, let’s say they don’t extend the tax cuts (which I have a bet going saying they won’t), what can you do to combat this?  I will be posting a blog soon to discuss ways in which you can combat the added cost if the tax cuts aren’t extended.