“Historic” Rise in Taxation in 6 Mos.

“Historic” Rise in Taxation in 6 Mos.

Posted by Veronica (Profile)

Friday, July 2nd at 12:20PM EDT

53 Comments

We’ve been here before.

Americans For Tax Reform culled a few things from the List of Expiring Federal Tax Provisions 2009-2020 off the government’s website:

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:

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 “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 “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit).  There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year.  Under tax rules, FSA dollars can be used to pay for this type of special needs education.

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.

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.  The 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

No One’s Capital Is Safe in Obama’s America

No One’s Capital Is Safe in Obama’s America

By Claude Sandroff

Obama’s poorly coded message to investors is to take your money out of America and keep it out. Whether through excessive taxation, suffocating over-regulation, or thuggish confiscation, the lesson to be drawn by anyone with excess capital is to look for friendlier places to put it to work.
The list of friendlier places excludes North Korea, Venezuela, and Iran for the time being, but almost everywhere else qualifies. Russia’s president spent several days in Silicon Valley recently looking for adventurous investors and came away with a $1B commitment from Cisco Systems. For Cisco, sitting on a cash hoard of $30B, with years of experience partnering with the burgeoning Russian venture capital industry, the decision was probably not a very tortured one. And what a perfect opportunity for Cisco’s CEO John Chambers to keep his cash as far from Obama’s collection agencies as possible. 
President Medvedev promises Cisco a capital gains tax rate of zero; President Obama promises to retire the evil George Bush capital gains rate of 15% and increase it to 20% in 2011. Cisco is merely telecasting to anyone who wants to tune in that Russia is taking advantage of Obama’s lurch towards socialism (or worse). While Russia is portraying itself as a stable bastion for capitalists, America is increasingly seen as the land that mauled Chrysler and GM bondholders. While erstwhile command economies are liberalizing, America under Obama is nationalizing. The lesson is clear: Don’t leave cash within the American financial system, earning minimal returns, with the fear that at any moment your assets can be confiscated or redistributed by a lawless and capricious federal government.
When will Obama decide that Cisco (or Wal-Mart, or Apple, or Google, or any other successful enterprise) is not paying its “fair share”? Aren’t the profit margins earned by Cisco on its routers — sometimes approaching 70% — too rich, or even obscene? Aren’t these gains, in essence, nothing but windfall profits resulting in the eventual gouging of the average American internet subscriber? Cisco might not drill in the Gulf of Mexico for its profits, but man-made disasters could await it too, in the form of arbitrary, BP-like shakedowns of its hard-earned wealth. Why risk shakedowns in gangland Obama when a much more competent criminal like Putin will guarantee your investments?
Cisco is not the only company sitting on a gigantic cash cushion. All told, the balance sheet cash for the non-financial segment of the S&P 500 totals around $1 trillion. Businesses sit on these huge asset cushions and accept earning virtually nothing in real terms because risks are too high to consider anything else. 
In 2011, one of the largest tax increases in American history goes into effect. Not only do capital gains rise, but so too does the payroll tax, the income tax, and the estate tax. And even then, businesses large and small, while in their final financial death throes, will have nothing to look forward to other than the doom of ObamaCare and the unknown costs that Obama will attempt to afflict via cap-and-trade and a European-style value-added tax.
Fears are also emerging about the eventual burden imposed on all of us by dozens of states virtually bankrupt, especially if the federal government structures bailouts for those states deemed too big to fail. Unfortunately, the biggest and most likely to fail — California, New York, and Illinois — are Democrat and union fortresses that Obama will not let topple.
These and many other states have already been thrown a life jacket during the last near-trillion dollar stimulus in the form of unemployment insurance and other transfer payments. But the effects of those financial stimulants are beginning to wear off, and the federal drug dealer has little inventory left — except for massive money-printing.
Inflation is almost the last strategy left for the Federal Reserve, having driven short-term interest to zero and purchased all the treasuries, agency, and mortgage debt thrown its way.
Fears of excessive taxation and unpredictable costs are muting American entrepreneurial animal spirits. These fears are likely at the root of our persistently high unemployment. The issue too often is not lack of loan supply to launch a new enterprise, but a lack of demand for the loans to get started. Strangling business creation translates into no new job creation. If you launch a business today and organize as an S-Corporation, how can you be even reasonably sure will you take home enough in profits to justify the initial risk of the undertaking? And if you were successful enough to reach the revenue heights of $250K, Obama would target you as a capitalist predator and promote you to the highest tax bracket.
In contrast to Jefferson’s goal of preserving “a model of government, securing to man his rights and the fruits of his labor, by an organization constantly subject to his own will,” our current administration is brutally determined to transform government into an organ that redistributes those fruits to its cronies. The reaction of sane, rational Americans to these perverse incentives is not to create or hire or produce. Instead, existing businesses and potential founders of new ones are hunkering down, hoping to wake up from this national nightmare in 2010 and 2012 with some of their wealth still intact.
Claude can be reached at csandroff@gmail.com.

Who Will Bail Out America?

Who Will Bail Out America?

May 13th, 2010

By Peter Ferrara, American Spectator

 

Social Security, Medicare and the retirement of the baby boom generation wasn’t enough of a burden for the American taxpayer. We will now be paying as well for the generous pensions of Greek bureaucrats retiring in the warm Mediterranean sun at age 55, thanks to the foresighted leadership of our very own international statesman, Barack Obama.

Just last year President Obama proposed, and his overwhelmingly Democrat Congress approved, an additional $100 billion line of credit from the USA to the International Monetary Fund (IMF). On Sunday, the IMF approved a contribution of $40 billion to the Greek bailout, with America voting yes for yet another raid on its own taxpayers.

But this is only the beginning. What the trillion dollar Euro bailout fund has done is to create the perverse incentives of Too Big to Fail for fiscally irresponsible Eurostates. Do those literally murderous Greek rioters look ready to accede to austerity budgets with massive tax increases and massive benefit cuts? Political leaders in the Mediterranean states in particular, faced with short-term financial and political pressures, will be too tempted to put off the pain a little longer, hoping that EU bailouts will save them in the end. Indeed, voters in Spain, Italy, Portugal, and elsewhere may well think they should get their share of those bailout funds too, voting out leaders who try to be responsible, and voting in the worst demagogues trying to take advantage of the situation to gain political power.

Imagine if each of the American states could run deficits with a federal bailout fund to back them up. Could we count on the voters of California, New York, New Jersey, Michigan, and Illinois to support candidates promising crippling austerity budgets, with draconian benefit cuts and skyrocketing taxes, so they can do the responsible thing? This is the system the EU has just adopted. What that means is get ready for still more IMF bailouts financed by American taxpayers.

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The Taxman Cometh

The Taxman Cometh

May 11th, 2010

by  Grover Norquist, Human Events

President Obama is quoted in Jonathan Alter’s new book, The Promise: President Obama, Year One, explaining how he lost control of the political momentum early in his administration, claiming that the unanimous Republican opposition in the House of Representatives to his stimulus spending bill “set the tenor for the whole year.”

“That helped to create the tea-baggers and empowered that whole wing of the Republican Party to where it now controls the agenda for Republicans.”

Because the Democrat party was alone in passing the stimulus and then the budget and then the healthcare spending bill, the Democrats alone own the increasingly unpopular issue of overspending.

Obama is determined not to repeat this mistake when he moves to massively raise taxes after the 2010 election.

He needs cover, a useful idiot, a high profile Republican who can stand with him in the Rose Garden when he endorses a VAT and higher income taxes and energy taxes. He wants Republican fingerprints on the murder weapon. The Democrats are stuck with their ownership of overspending. They want to share the blame for the taxes to pay to continue their overspending.

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Millions face tax increases under Dems budget plan

Millions face tax increases under Dems budget plan

By ANDREW TAYLOR, Associated Press Writer Andrew Taylor, Associated Press Writer Wed Apr 21, 7:06 pm ET

WASHINGTON – President Barack Obama’s Democratic allies in the Senate promise to cut the deficit by almost two-thirds over the next five years, but their budget plan could threaten about 30 million people with tax increases averaging $3,700 in 2012 and after because of the alternative minimum tax.

The alternative is tax increases elsewhere in the revenue code averaging up to $100 billion a year after 2011 to continue alternative minimum tax relief and also curb taxes on people inheriting large estates.

The Democratic plan released Wednesday by Senate Budget Committee Chairman Kent Conrad of North Dakota relies on such boosts in revenues to carve the deficit from $1.4 trillion last year down to $545 billion by 2015.

The minimum tax, or AMT, was enacted four decades ago to make sure wealthy people couldn’t avoid taxes altogethe. But it wasn’t indexed for inflation in people’s incomes, so it gets “patched” every year or so in order to prevent people from being surprised by multi-thousand-dollar tax bills at tax time.

Estates larger than $7 million would also be threatened with higher taxes after 2011 if Conrad’s plan is carried out.

Conrad says lawmakers will have to find revenues elsewhere in the budget to pay for AMT and estate tax relief after 2011, which could require tax increases averaging up to $100 billion a year elsewhere in the code if Congress is going to keep its promises under tough new budget rules.

Conrad says he hopes the dilemma will force Congress to overhaul the complicated and inefficient U.S. tax code. The Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, says that 33 million taxpayers would face the AMT in 2012, adding $3,700 on average to their tax liabilities.

Extending AMT and estate tax relief would cost $300-$400 billion over 2012-2015, Conrad said. Many observers say it’ll be virtually impossible for Congress to produce offsetting revenues to extend the tax relief. GOP Sen. Judd Gregg of New Hampshire predicted that when Congress confronts the problem in two years it will blink and simply borrow the money as it has done in the past.

The looming tax hikes result from the structure of President George W. Bush’s 2001 and 2003 tax bills, whose provisions generally expire at the end of this year. Obama promises to fully extend them except for individuals earning more than $200,000 a year and couple making $250,000 a year. They include lower income tax rates, a $1,000 per-child tax credit, and tax breaks for investments and reductions in the estate tax, and their five-year cost of almost $800 billion would be covered by adding to the nation’s $12.8 trillion debt.

But in the case of the AMT and estate tax, congressional Democrats have broken with Obama and promise that after two years of deficit-financed alternative minimum tax and estate tax cuts, Congress will have to come up with the money.

“If we want those things taken care of … they’ve got to be paid for,” Conrad said.

That’s easier said than done.

Gregg said the Democratic plan is “a budget that kicks the can down the road. More spending. More deficits. More debt. Less prosperity.”

The annual congressional budget is a nonbinding blueprint for the fiscal year that begins Oct. 1 and sets the parameters for subsequent tax and spending bills. This year, that means a cut of almost $9.5 billion from domestic agency budgets and foreign aid and a freeze, on average, of those accounts for the following two years.

Conrad’s plan, to be approved by the Budget panel Thursday, would permit Democrats to advance legislation on priorities such as taxes, energy and job creation without fear of a Republican filibuster. That could boost clean energy programs and revive Obama’s stalled jobs agenda.

Democrats haven’t decided exactly what to include in the filibuster-proof measure, though Conrad promised it wouldn’t be used to pass deeply controversial legislation to curb global warming.

Obama suggests value-added tax may be an option

Obama suggests value-added tax may be an option

By CHARLES BABINGTON, Associated Press Writer Charles Babington, Associated Press Writer Wed Apr 21, 7:14 pm ET

WASHINGTON – President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table, seeming to show more openness to the idea than his aides have expressed in recent days.

Before deciding what revenue options are best for dealing with the deficit and the economy, Obama said in an interview with CNBC, “I want to get a better picture of what our options are.”

After Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT, the Senate voted 85-13 last week for a nonbinding “sense of the Senate” resolution that calls the such a tax “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.”

For days, White House spokesmen have said the president has not proposed and is not considering a VAT.

“I think I directly answered this the other day by saying that it wasn’t something that the president had under consideration,” White House press secretary Robert Gibbs told reporters shortly before Obama spoke with CNBC.

After the interview, White House deputy communications director Jen Psaki said nothing has changed and the White House is “not considering” a VAT.

Many European countries impose a VAT, which taxes the value that is added at each stage of production of certain commodities. It could apply, for instance, to raw products delivered to a mill, the mill’s production work and so on up the line to the retailer.

In the CNBC interview, Obama said he was waiting for recommendations from a bipartisan fiscal advisory commission on ways to tackle the deficit and other problems.

When asked if he could see a potential VAT in this nation, the president said: “I know that there’s been a lot of talk around town lately about the value-added tax. That is something that has worked for some countries. It’s something that would be novel for the United States.”

“And before, you know, I start saying ‘this makes sense or that makes sense,’ I want to get a better picture of what our options are,” Obama said.

He said his first priority “is to figure out how can we reduce wasteful spending so that, you know, we have a baseline of the core services that we need and the government should provide. And then we decide how do we pay for that.”

Volcker has said taxes might have to be raised to slow the deficit’s growth. He said a value-added tax “was not as toxic an idea” as it had been in the past.

Since then, some GOP lawmakers and conservative commentators have said the Obama administration is edging toward a VAT.