The Tax Relief Reconciliation Act: Pros And Cons

The tax relief reconciliation act of 2003 was signed in to effect by President Bush. This act reduced the amount of taxes that many individuals had to pay and increased the exemption amount with the Alternative Minimum Tax. This was a very controversial tax mandate.

Changes in Tax Rates

The act was controversial because of the tax brackets it created. Those who made under $27,000 filing single, or $46,000 filing jointly would see no change in their brackets. Those making more than that would see a tax decrease of around 2%. Those who made over $300,000 yearly saw the largest break with a decrease of 3.6%.  As an example, a family who brings in $80,000 a year would see a decrease of $1600 a year in their taxes. A family who made $300,000 would have seen a break of almost $11,000.

The advantage for this was that almost everyone would see a tax break. The disadvantage was that the more money you made the more of a tax break you received. Many people also feel in to the category of no change. The people who seemingly needed the break the most wouldn’t be given any relief.

Capital Gains Taxes

The tax relief reconciliation act of 2003 also set forth a tax break for taxes paid on capital gains. The rates prior to this act were at 8%, 10%, and 20%. The tax act lowered it to 5% and 15%. For those who were already paying the lowest rate, the tax requirement was eliminated all together.

The downside to this was that those who held property for less than a year would not qualify for the tax breaks. Other categories like collectibles remained at the old rate with a cap of 28%. So for those who had bought newer investment property, or those who had collections worth money, the tax decreases never affected them in a positive manner.

Controversy

Tax changes will always benefit one group of people over another. In this case there was a lot of talk over whether or not the new act would actually spur growth in the economy. Those opposed to the taxes argued that giving wealthy individuals tax breaks would do nothing to help the economy, and that the people who needed the help the most were left out of the act all together. Those who supported it argued that allowing tax cuts to the wealthy would help to send more money in to the economy and those who were earning little paid very little in taxes anyhow.

Depending on your situation this act may or may not have affected you. For the most part, most people have benefited from this act. Whether or not it actually helped with growth in our economy remains to be seen.