Friday, September 03, 2010

120 Days to Go Until the Largest Tax Hikes in History

We are all fucked:

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 tax credit 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 top capital gains tax will rise from 15 percent this year to 20 percent in 2011. The top dividends tax rate 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. 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. Until this year, a retired person with an IRA could 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.Read more:


Jim said...

Regarding your tax bracket increases:

The ONLY WAY that any of those brackets OTHER than the top one will increase is if the Republicans block the extension of them in order to try to force the extension of the top bracket for the very rich.

So blame the Rethugs on that one.

Scorpion said...

HORRIBLE is the only way to look at imagination in that...

The Game said...

You need to prove that stupid ass comment Jim

Anonymous said...

The sky is falling!

The Game said...

Actually your check will be falling
Umemployment will be rising
and Dems power will fall as well

Marshall Art said...

"The ONLY WAY that any of those brackets OTHER than the top one will increase is if the Republicans block the extension of them in order to try to force the extension of the top bracket for the very rich."

The GOP understands things about taxes that lefties ignore or can't understand in the first place. Among them is that top percentage people generated more revenues after the Bush tax cuts than before. Their percentage of the total revenues rose. Take the cuts away and their percentage of the total will necessarily drop, generating less revenue for their bracket.

If done as Barry O'Butthead wants it done, it will mean also that those on the other end, who no longer get taxed since the Bush cuts, will still not be contributing. Bush's cuts allowed more people on the lower end of the earnings scale to be absolved from taxation. So, keeping that in place---you know,because Barry cares---while allowing the cuts to expire for those on the top side---you know, because they deserve to be taxed more---adds up to less revenue for the gov't.

Now, I have no problem with less tax dollars going to the gov't, but not in this manner. The reason the money dries up is because those providing it alter their practices to lessen their burden in order to preserve the fruits of their labors. They will hire less, cut staff or move their operations to a more business friendly environment, like China.

When it comes to tax policy, the left continue to have their heads up their backsides.

The Game said...

exactly right, problem is the people in charge until January think the stupid way Jim does..

TerryN said...

Marshall art has it right. Myself and those I know are already looking at ways to protect our hard earned income. Including trips to Belize to look at investments.

Is there anything wrong with trying to preserve what you earned?

Jim said...

"You need to prove that stupid ass comment Jim"

OK, here's my response to YOUR stupid ass comment: Obama wants to maintain the current tax rates for all of these brackets except for the top one, raising that one back to where it was in the Clinton boom years when he built up a budget surplus. The President and the Democrats will propose a bill to maintain the cuts for all the other brackets. The Republicans will just say "no." By blocking this bill, as they surely will try to do, they will make you and everyone else pay higher taxes in order to preserve that 4.6% for the wealthiest taxpayers, the only ones they really care about.

"Among them is that top percentage people generated more revenues after the Bush tax cuts than before." Your source for this is?

Your case can be stated thusly:

Post hoc ergo propter hoc

Post hoc ergo propter hoc, Latin for "after this, therefore because of this", is a logical fallacy (of the questionable cause variety) that states, "Since that event followed this one, that event must have been caused by this one." Source

Greenspan: "Tax cuts never pay for themselves."

Marshall Art said...

""Among them is that top percentage people generated more revenues after the Bush tax cuts than before." Your source for this is?"

Try the Congressional Budget Office.

Greenspan's comment isn't exactly true. As Laffer points out, there is point at which it tips the other direction. But what we're talking about, especially now in this current climate, is that to raise any taxes will NOT result in increased revenues because of how the taxed will adjust. Now, it is safe to say that in the initial period following the hike, we could indeed see some increase in revenues. But this is only because there is a lag between the implementation of tax policy and the effect it will produce upon those being taxed. But even in this case, we have seen activity that is pre-emptive in nature, business taking profits now because they anticipate a hike in taxes at the end of the year. Some see this as a potential cause of further economic distress as there will be less activity next year.

It's important to remember that when there is a belief that one's property will be at risk, one will move to preserve it. When you want to alter behavior in one direction or another through taxation, you must consider how people will react to having more of their bounty confiscated. Every time the gov't sought to take more, those from whom the gov't sought to take find ways to protect their assets.

Thus, the CBO has found that revenues DO increase when tax rates are lowered because of the additional activity that was stimulated by the producers having more of their profits preserved for THEIR purposes, which is always to increase their profits which are then taxed as well. Stimulating private sector activity is the best way to increase revenues to the the state. The gov't can best stimulate such activity by backing off and letting the private sector do what it does best. THAT is reality and THAT is what this administration is incapable of understanding.

Jim said...

"As Laffer points out, there is point at which it tips the other direction."

The Laffer curve is a theory. Interesting and possibly of use. It's a curve upon which some points indicate where higher taxes increase revenue and some points indicate where higher taxes decrease revenue. I got it. The problem is, can you show me anywhere where Laffer or anybody else has proved where the US currently IS on the curve?

The Game said...

Despite what Jim thinks I am fair and give credit when credit is due...and Jim makes a very good point here. I believe the theory is 100% correct but it is not like it is a math problem. We do not know where we are on the curve

Marshall Art said...

Nor does it matter. The question was regarding whether or not tax cuts lead to more revenues to the federal gov't. The CBO shows that as regards the Bush cuts, the answer was "yes". I believe the same is true for Reagan's cuts and Kennedy's cuts.

But what we're dealing with now is more than simply revenues to the state and whether or not cuts would help. NOW, we're dealing with an economy that is struggling and whether or not letting the cuts expire is a good idea. The answer is obviously "HELL NO!" because of all that is in place that is already stifling expansion and job creation. To add tax hikes now is far more idiotic than to do it in better economic times.

What's needed now is that which will stimulate the private sector. As Game's latest post indicates (I've posted on this news as well, as has Sister Toldjah), Barry's intent on butting in where he hasn't the experience or understanding. All he will be doing, should this bill pass, is to add to the debt that he supposedly wants to pay down. Why the hell would anyone spend more when spending is what got us here? He is compounding the problem. Just do in your personal life what Obama is doing and you will have no better illustration of just how stupid a man he is.

Can we afford even more cuts in taxes than we have now, even if all of Bush's cuts remained? I guess that would depend on how they were extended. So far, at best the Dems are talking only one year to keep them all as is. Would the average business owner feel confident as a result? I don't see how one year makes much difference.

But if they made the cuts permanent, that would be one less concern for business owners that is inhibiting their decisions regarding expansion and hiring. But add to that a further cut in corporate taxes, and I have no doubt you'd see a lot of activity as businesses would have more to work with. Then, all we'd have to do is convince Washington to cut spending. All of this is like a pipe dream with the current crop of buffoons in charge.

Jim said...

I meant to add that if one forecasts for the worst-case scenario, then uncertainty is moot.

Anonymous said...

Protect the rich. They created all the jobs from 2001-2009 when they got all those tax cuts. Right?

Jim said...

I would really like to start a dialog here is any of you would like to try.

I'll start.

Why would a small business add an employee?

The Game said...

Because whatever they provide/make/do is in enough demand that they need someone else to help do/make more of that thing.

Why are they not hiring?
Many reasons:
Everyone's taxes are going up Jan 1st in one way or another. Either by losing tax breaks, credits, socialized medicine taxes that take people will have less money to buy stuff.
No need to hire.
Even if for some reason that business is still growing that new employee will cost more with the new health care system.
And even if their business is up, it might not be for long.

Jim said...

I agree. Demand is the reason to hire.

"Everyone's taxes are going up Jan 1st in one way or another. Either by losing tax breaks, credits, socialized medicine taxes that take people will have less money to buy stuff."

You have no factual basis for this statement. 97% will retain their current tax rates. There is no socialized medicine except for those on Medicare, TriCare, etc. Their rates aren't going up due to HCR. Health care costs go up every year. Less than 1% of the increases are due to HCR. Your claim will have minimal effect if any.

Anonymous said...

For a man earing one million dollars who now has to pay $27,000 more in taxes, I can see why he would not have any money to buy goods and services. It must be terribly frightening for millionaires knowing they will pay higher taxes next year. Maybe they will just quit their job because they don't want to pay taxes. That happens all the time, right?