Most of the tax cuts enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) will expire at the end of 2010 unless Congress acts to extend them. If the cuts do expire as scheduled, income taxes will rise sharply for most Americans.
The Tax Policy Center (TPC) has estimated the effects of extending all of the income tax cuts and continuing the relaxation of the alternative minimum tax (the "AMT patch"). Overall, extending the cuts would reduce the average effective tax rate for all taxpayers in 2011 by 2.5 percentage points compared with letting all the cuts expire).
| Extend the 2001 and 2003 Income Tax Cuts and AMT Patch (indexed)—2011* |
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* Excludes effects of any change in estate tax.
TPC has also estimated the distributional effects of incrementally extending provisions of the 2001 and 2003 tax acts and of the reverse—allowing the provisions to expire incrementally . We based the order in which we analyzed specific provisions on our estimation of the likelihood that Congress would extend them or allow them to expire.
| Incremental Extension of the 2001-2003 Tax Cuts—2012 | Incremental Expiration of the 2001-2003 Tax Cuts—2012 |
| Current Law Baseline: Allow 2001-2003 Tax Cuts to Expire as Scheduled | | Current Policy Baseline: Extend 2001-2003 Tax Cuts, Patch AMT, and 2009 Estate Tax |
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| Permanent AMT Patch at 2009 levels, Indexed for Inflation | | Return Estate Tax to pre-2001 Law |
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| Extend 10, 25, and 28 Percent Tax Brackets | | Raise Top Two Tax Rates to 36 and 39.6 Percent |
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| Reduce Marriage Penalty | | Restore Personal Exemption Phaseout and Limitation on Itemized Deductions |
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| Expand EITC, Child Credit, Child and Dependent Care Tax Credit, and Tuition Deduction | | Increase Tax Rates on Long-Term Capital Gains; Reduce Tax Rates on Longer-Term Gains |
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| Tax Qualified Dividends like Long-Term Capital Gains | | Tax All Dividends as Ordinary Income |
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| Reduce Tax on Long-Term Capital Gains | | Repeal Expansions of EITC, Child Credit, Child and Dependent Care Tax Credit, and Tuition Deduction |
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| Repeal Personal Exemption Phaseout and Limitation on Itemized Deductions | | Restore Marriage Penalties: Standard Deduction, Bottom Tax Brackets for Couples, and EITC Phaseout Threshold |
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| Extend 33 and 35 Percent Tax Brackets | | Eliminate 10 Percent Bracket and Raise 25 and 28 Percent Tax Rates |
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| Impose Estate Tax with 45 Percent Tax Rate and $3.5 Million Exemption, Not Indexed ** | | Eliminate AMT Patch *** |
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| ** Result is Current Policy Baseline: Extend 2001-2003 Tax Cuts, Patch AMT, and 2009 Estate Tax | | *** Result is Current Law Baseline: Allow 2001-2003 Tax Cuts to Expire as Scheduled |
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