Congress, currently controlled by Democrats, has not acted on any type of tax reform. With only about 120 days until tax rates revert back to 2001 levels, it remains to be seen what they will do. (They haven't even worked on a budget for the next fiscal year).
Not only will the tax rates change, but other taxes will also be implemented or increase.
This table shows the tax for different taxable income levels, the increase if the tax cuts expire, and the percentage increase in the tax bill.
|Taxable Income||2001 Tax||2009 Tax||Increase||% Increase|
|Source: IRS 1040 tax schedules|
Other tax provisions that will come to be (from The Snow Report and Kiplinger Mag):
Marriage penalty and child deduction: 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 $1,000 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.
Return of the "death" tax: The return of the estate tax. This year, there is no estate tax. For those dying on or after Jan. 1, 2011, there is a 55 percent top death tax rate on estates more than $1 million. A person leaving behind two homes and a retirement account could easily pass along a huge 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 a maximum 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.
Second Wave: Obamacare
There are more than 20 new or higher taxes in Obamacare. Several will first go into effect on Jan. 1, 2011.
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 $2,500. (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 – (Alternative Minimum Tax) won’t be held harmless, many tax relief provisions will have expired.
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. Covered 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.
Now your insurance is INCOME on your W2. One of the surprises we’ll find come next year is a little ”surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation : the dupes, er, dopes, who backed this administration will be astonished!
Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort. If you’re retired? So what; your gross will go up by the amount of insurance you get. (Note: This increase is not included in the table above).
You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That’s what you’ll pay next year. For many, it also puts you into a new higher bracket so it’s even worse.
This is how the government is going to buy insurance for the 15% that don’t have insurance and it’s only part of the tax increases.
It's legalized theft, in my book.