The $69 billion tax cut bill that President Bush signed this week tripled tax rates for teenagers with college savings funds, despite Mr. Bush’s 1999 pledge to veto any tax increase.
Under the new law, teenagers age 14 to 17 with investment income will now be taxed at the same rate as their parents, not at their own rates. Long-term capital gains and dividends that had been taxed at 5 percent will now be taxed at 15 percent. Interest that had been taxed at 10 percent will now be taxed at as much as 35 percent.
The increases, which are retroactive to the first day of the year, are expected to generate nearly $2.2 billion over 10 years, according to the Congressional Joint Committee on Taxation, which issues the official estimates.