The potential fallout of not extending the U.S. tax cut legislation, implemented by President George Bush's administration, is staggering. The U.S. economy is in a state of crisis. Many economic experts believe this could be the staggering blow that pushes the unemployment rate even higher as small business owners are forced to begin laying off even more employees in order to maintain the slimmest of profit margins.
What did the Bush Tax Cuts Accomplish?
There are many questions about the tax cuts and a lot of debate about how effective they were. It's a good idea to get familiar with them and make up your own mind for how they could potentially impact your business, your employment, or even your ability to employ others as the case may be.
The cuts were an across the board cut that impacted the capital gains tax, federal income tax, and the estate tax. The common misconception is that it was a tax cut only for the wealthy. This is simply not true. In addition to the tax cuts mentioned above, the tax cuts extend to the working poor, parents, and married couples while increasing tax credits for savings related to education and retirement.
Important things to Note About the Tax Cuts
An important consideration that people need to realize about the tax cuts is that they were created at a time when the outlook was rosy for the U.S. economy. President George Bush actually made tax cuts twice during his term in office. The first legislation was prior to the horrific acts of Sept. 11, 2001, and the other was in 2006.
In 2001, the idea was to simplify retirement and lower the federal income tax rates. These changes were sweeping in nature and impacted a sizeable cross section of the general public including retirees or those who were preparing 401(k) plans and IRAs for eventual retirement. The capital gains tax was also reduced to 8% from 10% on property or stock that was held for 5 years or more.
By 2006, the top tax rates had been reduced from 39.6% to 35%. The overall tax burden on married couples who filed jointly were also reduced by an increase in standard deductions. It also increased the tax credit amount per child in a household as well as the amount of credit for the care of dependent children.
These tax cuts are set to expire at the end of 2010 without intervention by congress. The prevailing rule of thought is that unless significant changes are made during the
November elections, there is little likelihood of that happening.
What Will the Elimination of these Tax Cuts Mean for Tax Payers?
There are those who would love to spin these cuts as cuts that only impact the wealthiest among us. That simply isn't the case. Everyone who pays taxes will be impacted in one way or another by the elimination of these tax cuts.
The lowest tax bracket prior to the Bush tax cuts was the 15% bracket. The cuts lowered the minimum to 10% of income. That will increase to 15% when the tax cuts expire. In fact, those who are currently in the 10% tax bracket will be hardest hit when the tax cuts expire because their tax burdens are set to increase by a full five percent or a 50% increase in their tax liability. The highest tax bracket will only see an increase of 4.6%. All others will only see a 3% increase.
Here are Just a few of the potential problems that will arise as a result of allowing these tax cuts to expire on December 31, 2010.
• Small businesses will lay off workers. Small business owners stand to take a huge hit with additional taxes on top of the health care bill that was recently signed into law. Both of these will take a huge financial toll on businesses at a time when revenue and sales are at all time lows for many businesses. Ultimately, they will be unable to maintain their current labor force and even more layoffs will take place in the first part of 2011. Other businesses will place a freeze on all new hiring. At a time when new jobs are most vital for the recovery of our economy, businesses will stop hiring.
• No new jobs will be created. People will stop spending money. The bottom line is that even those paying into the bottom rung of the tax ladder (not just the top tier spenders) will have less disposable income. This means fewer people are spending money which will lead to even more job instability.
• Consumer confidence will be shaken. In a worst case scenario, we could go back to the old days when people buried money in coffee cans in the back yard or hid it beneath mattresses. It is inevitable that consumers will simply curtail spending their dollars and of course, not invest it either. They will simply be holding onto it and often not even putting it in banks. There will be fewer dollars circulating, buying goods, building houses, and thus, impacting adversely the overall standard of living which in turn will perpetuate bigger problems for the U.S. And world economies. This is probably the most dangerous of all possibilities.
Is there a Silver Lining to be Found?
There is however one potentially positive side effect to come out of the elimination of the tax cuts President George Bush created. More people will be forced to explore other options than working for someone else. We will see a huge rise in the number of people going into business for themselves.
As the competition rises for fewer jobs to be found, people will be forced to find alternatives to traditional employment. Many people are finding that now is the perfect time to strike out on their own and embrace the entrepreneurial spirit that has brought the U.S. to so much economic prosperity in the past. The technology of today makes starting a new business easier than ever before.
About this Author
Bob Clark is a blind entrepreneur who despite the recession, is able to make a good living with his new business model. Join Bob's team here: http://www.MarketingBusinessOpportunity.net!
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