The Bush tax cuts and credits are set to expire at the end of 2010. If they do expire, a lot of folks will experience a significant adjustment to their tax situation. 

The “Bush tax cuts” refers to legislation enacted in 2001 and 2003. The cuts lowered tax rates on income, dividends, and capital gains; eliminated the estate tax; lowered burdens on married couples, parents, and the working poor; and increased tax credits for education and retirement savings.

Both Republicans and Democrats favor an extension of the tax cuts for the middle class. Where they differ is whether to extend the cuts for Americans in the top 2% of taxpayers.

With this in mind, we’re looking at year-end measures separately for these two groups: the middle class – those making less than $200,000 for singles / $250,000 for married filers – and the higher income taxpayers – those making more than $200,000 / $250,000.

But first, let’s take a quick look at what’s at stake.

If All the Bush Tax Cuts Expire…

Among other things, if the Bush tax cuts were allowed to expire, the following would take place:

1.    Tax brackets would change, from 10%, 15%, 25%, 28%, 33%, and 35% to 15%, 28%, 31%, 36%, and 39.6%.

2.    Long-term capital gain tax rates would rise from 15% to a maximum of 20%.

3.    The child tax credit would be lowered.

4.    The alternative minimum tax would cease to be indexed for inflation.

5.    The marriage penalty would be reinstated.