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Jobs and Growth Tax Relief Reconciliation Act of 2003

 
Investment Dictionary: Jobs And Growth Tax Relief Reconciliation Act of 2003
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An act passed by congress that was intended to improve the economy of the United States by reducing the taxes collected, giving the population more money to spend. The act was passed in May 2003 and signed into law shortly after.

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The passing of the Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the tax rate applied to dividend income by making this income count as capital gains instead of as a part of normal income. The act also simplified rules relating to qualifying retirement plans and increased the personal tax exemption amount of the 'alternative minimum tax'.

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Financial & Investment Dictionary: Jobs and Growth Tax Relief Reconciliation Act of 2003
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Legistlation providing significant tax relief for individuals, investors, and businesses that was signed into law on May 28, 2003. The major provisions of the law are:

1. -Accelerated expansion of the 10% tax bracket. The 10% tax bracket applies to the first $7,000 of taxable income for singles and $14,000 for married couples filing jointly. Beginning in 2004, the taxable income levels for the 10% bracket will be adjusted for inflation.

2. -Accelerated reduction of individual income tax brackets above 15%. The new tax brackets above 15% are 25%, 28%, 33%, and 35%.

3. Accelerated increase in the child credit. Starting in 2003, the child tax credit is increased to $1,000.

4. -Elimination of the marriage penalty. The standard deduction for married couples filing jointly becoms twice the deduction for single taxpayers. The size of the 15% tax bracket is widened so that the married level of income is double the size of the single level of income.

5. -Increase in AMT exemption amount for individuals. The exemption amount is increased to $58,000 for married couples filing jointly, $29,000 for married couples filing singly, and $40,250 for singles.

6. Adjustments in withholding tables. The IRS changed its withholding tables so that less tax is withheld from workers' paychecks because of the reductions in tax rates.

7. -Long-term capital gains tax rates reduced to 5% and 15%. Capital gains tax rates were reduced from 10% to 5% and from 20% to 15% for asset sales after May 5, 2003 for assest held a year or longer. Gains from property purchased after 2000 and held more than five years are taxed at an 8% capital gains rate.

8. Tax rate on noncorporate taxpayers' dividend income cut to 5% and 15%. Dividends are taxed at 5% for those in the two lowest tax brackets, and 15% for those in the higher tax brackets. Previously, dividends had been taxed at regular income tax rates.

9. -Expanded expensing election for businesses. The amount of expense that a business can deduct in the year it buys equipment rises from $25,000 to $100,000, as an incentive to increase capital expenditures.

10. -Bonus first-year depreciation allowance liberalized. The bonus for first-year depreciation for property bought after May 5, 2003 is boosted from 30% to 50%. This bonus applies to equipment, property, and autos.

11. -Accumulated earnings tax and personal holding company tax rates reduced to 15%. Formerly, accumulated earnings and profits that were taxed at regular income tax rates as high as 38.6% were reduced to a 15% tax rate.

12. -Collapsible corporation rules repealed. A collapsible corporation is one that had assets that had appreciated in value and before the corporation realized the increased value from the property, was liquidated, or made a distribution to shareholders. Such gains were formerly taxed at ordinary income rates. After the repeal of these rules, distributions are taxed at capital gains rates.

Wikipedia: Jobs and Growth Tax Relief Reconciliation Act of 2003
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The Jobs and Growth Tax Relief Reconciliation Act of 2003 ("JGTRRA", Pub.L. 108-27, 117 Stat. 752), was passed by the United States Congress on May 23, 2003 and signed by President Bush on May 28, 2003.

Among other provisions, the act accelerated certain tax changes passed in the Economic Growth and Tax Relief Reconciliation Act of 2001, increased the exemption amount for the individual Alternative Minimum Tax, and lowered taxes of income from dividends and capital gains.

There was and is considerable controversy over who benefited from the tax cuts and whether or not they have been effective in spurring sufficient growth. Supporters of the proposal and proponents of lower taxes claimed that the tax cuts increased the pace of economic recovery and job creation. Further, proponents of the JGTRRA asserted that lowering taxes on all citizens, including the rich, would benefit all and would actually ply more money from the wealthiest Americans as they would avoid tax shelters for their money. The Wall Street Journal editorial page states that taxes paid by millionaire households more than doubled from $136 billion in 2003 to $274 billion in 2006 because of the JGTRRA.[1]

Critics state that the tax cuts have failed to spur growth, while increasing the budget deficit, shifting the tax burden from the rich to the middle and working classes and further increasing already high levels of inequality.[2][3][4][5][6] Before the tax cuts were signed President Bush was urged by 450 economists, including 10 Nobel Prize Laureates, in the Economists' statement opposing the Bush tax cuts not to implement his tax cuts[7]. Economists Peter Orszag and William Gale described the Bush tax cuts as reverse government redistribution of wealth, "[shifting] the burden of taxation away from upper-income, capital-owning households and toward the wage-earning households of the lower and middle classes."[8] Supporters countered that the tax brackets were still more progressive than the brackets from 1986 until 1992, with higher marginal rates on the upper class, and lower marginal rates on the middle class than established by either the Tax Reform Act of 1986 or the Omnibus Budget Reconciliation Act of 1990, so any apocalyptic rhetoric was exaggerated.

The Congressional Budget Office estimated that the tax cuts would increase budget deficits by $60 billion in 2003 and by $340 billion by 2008. Supporters of the president argue that this analysis ignores the potential growth that the act could encourage. Supporters also argue that this would be further supported by analyzing the effect of the economic shock of the terrorist events of September 11, 2001. The terrorist fears, resulting reduction in travel and consumer expenditure, and increased security expenditures, they say, are a prime example of an economic cost shock, and they suggest that the recession of 2001 and 2002 would have been drastically worse had no attempts at promoting economic growth by reducing taxes been made, though there is no empirical evidence to support or disprove this claim (nor could there be). The lag between policy making and economic impact suggests the possibility to be remote, like any fiscal stimulus plan, most of which are fully enacted only when the recession is over.

Contents

Description of cuts

JGTRRA continued on the precedent established by the 2001 EGTRRA, while increasing tax reductions on investment income from dividends and capital gains.

Accelerated credits and rate reductions

JGTRRA accelerated the gradual rate reduction and increase in credits passed in EGTRRA. The maximum tax rate decreases originally scheduled to be phased into effect in 2006 under EGTRRA were retroactively enacted to apply to the 2003 tax year. In addition, the child tax credit was increased to what would have been the 2010 level, and "marriage penalty" relief was accelerated to 2009 levels. In addition, the threshold at which the alternative minimum tax applies was also increased.

Investments

JGTRRA increased both the percentage rate at which items can be depreciated and the amount a taxpayer may choose to expense under Section 179, allowing them to deduct the full cost of the item from their income without having to depreciate the amount.

In addition, the capital gains tax decreased from rates of 8%, 10%, and 20% to 5% and 15%. Capital gains taxes for those currently paying 5% (in this instance, those in the 0% and 15% income tax brackets) are scheduled to be eliminated in 2008. However, capital gains taxes remain at the regular income tax rate for property held less than one year. Certain categories, such as collectibles, remained taxed at existing rates, with a 28% cap. In addition, taxes on "qualified dividends" were reduced to the capital gains levels. "Qualified dividends" excludes most income from foreign corporations, real estate investment trusts, and credit union and bank "dividends" that are nominally interest.

Legislative History

Final House vote:

Vote by Party Yes No
Republicans 224 99.6% 1 0.4%
Democrats 7 3.4% 198 96.6%
Independents 0 0.0% 1 100%
Total 231 53.6% 200 46.4%
Not voting 4 0

Final Senate vote:

Vote by Party Yea Nay
Republicans 48 3
Democrats 2 46
Independents 0 1
Total 50 50
Vice President Dick Cheney(R): Yes

Tax bracket comparison

The tax cuts enacted by this legislation were retroactive to January 1, 2003 and first applied to taxes filed for the 2003 tax year. These individual rate reductions are scheduled to sunset on January 1, 2011 along with the Economic Growth and Tax Relief Reconciliation Act of 2001 unless further legislation is enacted to make its changes permanent.[9] This comparison shows how the ordinary taxable income brackets for each filing status were changed.

Single

Tax Year 2002[10] Tax Year 2003[11]
Income level Tax rate Income level Tax rate
up to $6,000 10% up to $7,000 10%
$6,000 - $27,950 15% $7,000 - $28,400 15%
$27,950 - $67,700 27% $28,400 - $68,800 25%
$67,700 - $141,250 30% $68,800 - $143,500 28%
$141,250 - $307,050 35% $143,500 - $311,950 33%
over $307,050 38.6% over $311,950 35%

Married filing jointly or Qualifying widow(er)

Tax Year 2002[10] Tax Year 2003[11]
Income level Tax rate Income level Tax rate
up to $12,000 10% up to $14,000 10%
$12,000 - $46,700 15% $14,000 - $56,800 15%
$46,700 - $112,850 27% $56,800 - $114,650 25%
$112,850 - $171,950 30% $114,650 - $174,700 28%
$171,950 - $307,050 35% $174,700 - $311,950 33%
over $307,050 38.6% over $311,950 35%

Married filing separately

Tax Year 2002[10] Tax Year 2003[11]
Income level Tax rate Income level Tax rate
up to $6,000 10% up to $7,000 10%
$6,000 - $23,350 15% $7,000 - $28,400 15%
$23,350 - $56,425 27% $28,400 - $57,325 25%
$56,425 - $85,975 30% $57,325 - $87,350 28%
$85,975 - $153,525 35% $87,350 - $155,975 33%
over $153,525 38.6% over $155,975 35%

Head of household

Tax Year 2002[10] Tax Year 2003[11]
Income level Tax rate Income level Tax rate
up to $10,000 10% up to $10,000 10%
$10,000 - $37,450 15% $10,000 - $38,050 15%
$37,450 - $96,700 25% $38,050 - $98,250 27%
$96,700 - $156,600 28% $98,250 - $159,100 30%
$156,600 - $307,050 33% $159,100 - $311,950 35%
over $307,050 38.6% over $311,950 35%

References

  1. ^ "Their Fair Share". Wall Street Journal. July 21, 2008. http://online.wsj.com/article/SB121659695380368965.html
  2. ^ "Price, L. (October 25, 2005). The Boom That Wasn’t: The economy has little to show for $860 billion in tax cuts.". http://www.epi.org/briefingpapers/168/bp168.pdf. Retrieved 2007-10-13. 
  3. ^ "Tax Cuts Offer Most for Very Rich, Study Says". The New York Times. 2007-01-08. http://www.nytimes.com/2007/01/08/washington/08tax.html?ei=5088&en=e1dc830d58c7eacb&ex=1325912400&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1168290792-GR0HodSCCzDHPWdgiU8nlg. Retrieved 2007-01-14. 
  4. ^ Justin Fox (2007-12-06). "Tax Cuts Don't Boost Revenues". Time. http://www.time.com/time/magazine/article/0,9171,1692027,00.html. Retrieved 2007-12-07. 
  5. ^ "Economists on Net Revenue Impact of Bush Tax Cuts. .". http://logicizer.townhall.com/g/f48d2bf3-1c51-4592-aa46-191f089d752f?Docid=213. Retrieved 2007-11-10. 
  6. ^ "Price, L. & Ratner, D. (October 26, 2005). Economy pays price for Bush’s tax cuts.". http://www.epi.org/briefingpapers/168/bp168.pdf. Retrieved 2007-11-10. 
  7. ^ "4. Akerlof, G., Arrow, K. J., Diamond, P., Klein, L. R., McFadden, D. L., Mischel, L., Modigliani, F., North, D. C., Samuelson, P. A., Sharpe, W. F., Solow, R. M., Stiglitz, J., Tyson, A. D. & Yellen, J. (2003). Economists’ Statement Opposing the Bush Tax Cuts.". http://www.epi.org/stmt/2003/statement_signed.pdf. Retrieved 2007-10-13. 
  8. ^ "Gale, G. W. & Orzsag, P. R. (May 4, 2005). The Great Tax Shift.". http://www.brookings.edu/articles/2005/0504taxes_gale.aspx. Retrieved 2007-11-11. 
  9. ^ Bischoff, Bill (2003-05-27). "What the Bush Tax Cut Means for You". smartmoney.com. SmartMoney. http://www.smartmoney.com/tax-advice/index.cfm?story=20030527. Retrieved 2008-10-07. 
  10. ^ a b c d "2002 1040 Instructions" (PDF). IRS.gov. United States Internal Revenue Service. pp. 75. http://www.irs.gov/pub/irs-prior/i1040--2002.pdf. Retrieved 2008-10-07. 
  11. ^ a b c d "2003 1040 Instructions" (PDF). IRS.gov. United States Internal Revenue Service. pp. 74. http://www.irs.gov/pub/irs-prior/i1040--2003.pdf. Retrieved 2008-10-07. 

See also

External links

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