Monday, August 30, 2010

Four Months to Go Until the Largest Tax Hikes in U.S. History

I saw this excellent posting by Ryan Ellis at Americans for Tax Reform and thought it more than worthy of sharing.

In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:

(N.B. This version of the document contains even more tax hikes than the original version did)

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:

The Tanning Tax. This went into effect on July 1st of this year. It imposes a new, 10% excise tax on getting a tan at a tanning salon. There is no exemption for tanners making less than $250,000 per year.

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Brand Name Drug Tax. Starting next year, there will be a multi-billion dollar tax assessment imposed on name-brand drug manufacturers. This tax, like all excise taxes, will raise the price of medicine, hurting everyone.

Economic Substance Doctrine. The IRS is now empowered to disallow perfectly-legal tax deductions and maneuvers merely because it judges that the deduction or action lacks “economic substance.” This is obviously an arbitrary empowerment of IRS agents.

Employer Reporting of Health Insurance Costs on a W-2. This will start for W-2s in the 2011 tax year. While not a tax increase in itself, it makes it very easy for Congress to tax employer-provided healthcare benefits later.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. These major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.

These coming tax hikes are a forgone conclusion.  Congress can help by voting to continue the Bush tax cuts, but  regardless the effects of the Obamacare taxes will be economically devastating to our economy.
More change you can believe in, I suppose.


Dave Splash said...

If even 10% of that stuff was accurate, I'd be worried. But, as with nearly all the pro-billionaire anti-tax garbage, most of what they are saying is sheer nonsense. These are the exact same talking points the GOP used in 1994, and though they won the elections that year, they were ultimately proven wrong as the Clinton economy boomed throughout the 90s. After W. Bush came in and mucked it all up, we are now in the same place a Bush left us in 92. Heckuva job, Bushie!

And since the GOP "plan" for the economy is nothing more than reducing the taxes even more for millionaires, billionaires, and multi-national corporations, while increasing the tax burden for the middle class and small business, it certainly looks like we are headed for a new gilded age.

Why anyone would support a party whose entire agenda is designed to advance the interests of the top 1% is beyond me. I guess that's why they always lie and say the support small business. Unless "small business" includes BP, I don't think they are being sincere.

T. Paine said...

Dave, you keep making the false assertion that I am a Republican. THEY are a big part of the problem. I absolutely agree with that.

That being said, you are being disingenuous, sir.

The expiration of the "Bush" child tax credit and the marriage penalty alone will harm scores of millions of low and middle income taxpayers far more than it will the upper class.

Why do progressives wish to punish regular people too just so they can "get even" with the evil rich?

Dave Splash said...

I don't see the rich as evil at all. Just selfish and greedy. If I had every advantage in life, received billions in tax payer subsidies for my business, and paid a lower percent in taxes than my secretary did (which is the case with Warren Buffet), then I wouldn't constantly be whining about my taxes going up 4%. Especially when that 4% increase could wipe out the debt incurred by the Iraq War.

I am tired of seeing all the "sacrifice" coming from the middle class and none from the top 1-2%. In the last 30 years, the gap between the uber-rich and everybody else has grown to its highest level in history, while wages for everyone have been relatively stagnant.

I don't hate the rich, Paine. I want them to be part of the sacrifice we are all going to have to make in order to get our financial house in order. For the last 30 years, they have reaped all of the benefits. Now it's time for some fairness, and an end to the whining from the likes of the Koch brothers.

T. Paine said...

I will again refer you to the non-partisan

The richest 1% of Americans' tax burden now exceeds that of the bottom 95% of Americans' tax burden. At what point do you think "fairness" is reached, Splash?

Further, I was raised in a family where my father died when I was twelve. For awhile we had to live with the help of food stamps for about six months. Despite all of that, I took advantage of my public schooling, went into the service, got an education and became a successful engineer.

I am comfortable but not rich. There are millions of other people in this country that have similarly pulled themselves up by the boot straps and have become rich by not playing the damned victim.

Believe it or not, most people that are rich are not that way due to having "screwed" the poor. It is done by hard work and perseverance. It is done because of the freedom and opportunity provided by being an American.

The alternative is to wait for the government to come help you from your own desperation and then live a subsistence life style accordingly.

I, like many other people of some modest means, give much of my time and money to charity and am proud to do so. You seem to live in a world where ANYONE that has money must have gotten it through ill-gotten means. Such is rarely the case, my friend.

Dave Splash said...

I would advise that you read this analysis from the Institute for Policy Studies before arguing that the rich did not get that way on the backs of the poor and middle class. "after adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.

American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s. Back in those years, precious few top executives made over 30 times what their workers made. In 2009, we calculate in the 17th annual Executive Excess, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers. CEOs are clearly not hurting."

And these guys can't hire more people because of a measly 4% tax on their personal income. Sorry, Paine, I just don't buy it.

T. Paine said...

Dave, you are talking about an infintessimally small fraction of the nation's population that would be a CEO of any company large enough to command that kind of salary.

While I personally think that some of the salaries paid to Fortune 500
executives is exhorbitant, I don't necessarily begrudge them that.
A CEO commands the assets and investments of millions of shareholders often times. It is his decisions that determine the livlihoods and retirements of myriads of people all the while trying to improve or strategically position his company to provide a better service or product to us consumers. The responsibilities are enormous and they should be compensated well WHEN and IF they do a good job with their management of the company.

If they run their companies like our last few presidents have, they should be summarily fired and not given any golden parachute.