What Would Happen if the Bush Tax Cuts Expire

From the Wall Street Journal.com:

What would it actually mean for you if they let the Bush tax cuts expire at the end of this year, and we went back to the old Bill Clinton tax rates adjusted for inflation?

This is a thought experiment, not a prediction or a recommendation.

The tax cuts, passed in 2001 and 2003, are front and center now and will be a hot issue going into the elections this fall. Unless something is done by the end of the year, they'll expire. With the economic recovery looking shaky, expiration is particularly controversial.

Most of the attention has understandably focused on highest earners, who are likely to be most affected by whatever happens. But as the debate has gathered pace I have been wondering what it might mean for everyone else. After all, according to the IRS just 4% of Americans earn more than $200,000 a year.

How high were taxes back in the 1990s? How would those rates seem now? The American Institute of CPAs supplied me with the numbers. I updated the tax brackets to account for inflation.

Sure, everyone's taxes are different, and the U.S. tax code is so horrendously Byzantine that the moment you say anything you run into a thicket of caveats. But let's run some numbers. And let's take a very broad brush approach to this. Let's assume you're a typical filer, you take the standard deduction, and let's just look at the biggest tax issues.

The Specter of the 1993 Energy Tax

The New York Times is reporting that after the house passed the energy and climate bill on Friday, some Republicans are referring to the legislation as the ghost of Clinton’s failed ’93 energy tax. However, according to blogger Andrew C. Revkin this is not the case. Please continue to read below.

In an effort to blunt the momentum of the energy and climate bill that the House narrowly passed on Friday, Republicans are raising the specter of the failed effort by President Bill Clinton to craft an energy tax in 1993, according to an article filed by Carl Hulse of our Washington bureau. Mr. Clinton alluded to this setback in an interview in 2008.

There are enormous differences between the two situations and initiatives. The 1993 tax was pursued mainly as a source of revenue to cut the deficit, not a means of reducing American dependence on foreign oil and cutting risks of dangerous climate change. But there is one similarity. Democrats, particularly from coal states, helped set the stage for the failure of the 1993 tax, according to various experts, and according to Mr. Clinton. He touched on this in the interview. Democrats from states that produce or depend on fossil fuels have been slow to buy into the climate bill.