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5 Benefits of the Bush Tax Cuts Extension Bill and How It Will Affect You

The $858 billion tax-cut package recently passed by Congress to extend the Bush tax cuts contains incentives that will benefit all Americans. Democrats and Republicans were able to reach a compromise and managed to create a bill that includes various advantages that each party has been advocating. The bill’s financial incentives will provide help to both the employed and unemployed alike, at least in the short term.

Let’s take a look at 5 of the benefits that most Americans should begin seeing immediately in 2011.

1. More Money in Your Paycheck
One of the best things about the extension of the Bush tax cuts is that you will start seeing more money in your paycheck almost immediately. Workers will receive a virtual payroll holiday as the new tax bill gives everyone a 2% payroll tax cut. This will have the effect of a second stimulus as it will boost consumer spending. For example, if you currently make $60,000 a year then you will see your paycheck increase by $1,200 annually. That’s not a bad deal.

2. Extension of Unemployment Insurance
One of the key provisions that Democrats wanted and received was an extension of long-term unemployment insurance benefits. Unemployed Americans were in danger of losing these benefits, but now they will continue to receive them throughout 2011 until they’re able to find a job in this economy. The maximum length of time that anyone can receive benefits is 99 weeks. Unemployment is currently at 9.8%, so millions of Americans would have lost access to needed funds that they rely on for survival had the bill failed. The new laws give people hope in surviving unemployment.

3. No Increase in Tax Rates
The biggest debate in Congress about the tax-cut package was over which Americans should be eligible for the tax cuts. Republicans wanted tax reductions to remain in tact for all Americans regardless of income levels. They won that battle and now the middle class and the wealthy will both see their tax rates remain unchanged. This is a benefit to Americans who make over $250,000 per year in taxable income, as they were going to see their tax rate increase from 35% to 39.6%.

4. Lower Capital Gains and Dividend Rates
Investors will also benefit because the tax bill encourages investment by keeping tax rates at historic lows. The tax rate on capital gains and dividends will remain at 15%, which is well below the average income tax rate for most Americans. This will allow long-term investors to pay less money to Uncle Sam and keep more money in their wallets.

5. Tax Credits for College
College students may not know it, but the tax-cut deal affects them as well. They will continue to receive the college tuition tax credits that were introduced in last year’s economic stimulus law and were set to expire at the end of this year.

As you can see, there are perks in this tax package that will benefit the rich and the middle class alike. This bill may add a lot to the long-term deficit, but it will have some short-term benefit. What are your thoughts?

(photo credit: Jim Young/Reuters)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, "Your Financial Playbook."

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