Marginal Individual Tax Rates
The Economic Growth and Tax Relief Act of 2001 – the first Bush tax cut package – included significant, temporary individual tax rate reductions. Originally scheduled to sunset at the end of 2010, the reduced rates were extended through 2012 just before they expired.
On January 1, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (the Act), permanently extending the reduced marginal rates for individuals with income of $400,000 or less ($450,000 or less for married couples). The Act increased the top marginal rate from 35% to 39.6% for individuals whose income exceeds $400,000 ($450,000 for married couples), effective January 1, 2013. These income thresholds are indexed for inflation.
Capital Gains and Dividends Taxes
In 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 – the second Bush tax cut package – included, along with other tax relief, temporary reductions in tax rates on dividends and capital gains. That legislation set the top rate on both dividends and capital gains at 15% through 2010, after which the top rate on dividends would increase to 39.6% while the top capital gains rate would rise to 20%. At the end of 2010, Congress passed a two year extension of these lower investment tax rates, through 2012.
The Act permanently set the top rate on dividends and capital gains at 20% for unmarried taxpayers with income above $400,000 ($450,000 for married couples) (indexed for inflation).
PEP and Pease Limitations
In addition to the individual tax rate increases mentioned above, the Act also permanently reinstated the personal exemption phase-out (PEP) and limitation on itemized deductions (Pease) for single taxpayers with adjusted gross income (AGI) above $250,000 and married couples with AGI over $300,000. PEP and Pease effectively increase marginal tax rates for individuals with AGI above the threshold amounts (which also are indexed for inflation).
The Chamber supports comprehensive tax reform that lowers, and synchronizes, rates for both corporations and individuals, many of whom operate businesses as partnerships, sole proprietorships or other types of flow-through entities and, thus, pay taxes at individual rates. The Chamber believes that higher individual marginal tax rates and investment tax rates undermine the economic recovery, choke off job creation, and take money out of the hands of the individuals and businesses that create jobs, spur investment, boost consumption, and promote economic growth.
- JCT Estimated Revenue Effects of the Revenue Provisions in The American Taxpayer Relief Act of 2012
- JCT Overview of the Federal Tax System in Effect for 2013
- General Explanation Of Tax Legislation Enacted In The 112th Congress
- Dept. of the Treasury General Explanation of the Administration's FY 2014 Revenue Proposals