Largest Tax Hikes in History Coming in 2011
Beware of the Obama Tax Increases
September 3, 2010USA TODAY OPINION - Listening to the Democrats this summer, you're unlikely to hear about an impending tax increase. In an effort to sanitize their historically irresponsible decision to raise tax rates in the midst of a struggling economy, President Obama and the congressional majority say they are merely "allowing the Bush tax cuts" to expire.
Skillful messaging perhaps, but cold comfort to the millions of Americans and small businesses who aren't concerned with what their effective tax rate was in 2001. For them, on Jan. 1, one of two things will happen: Taxes will go up, or taxes will stay the same. Coming to grips with this reality will be crucial to jump-starting the economic recovery. Decisions on whether to buy an appliance, invest in a company, or expand a business are made by taking into account after-tax returns in the future — not in the past.
Democrats want Americans to believe that by letting tax rates rise they have discovered religion as deficit cutters. But after a two-year assault on the federal trough in which Congress passed the notoriously wasteful stimulus and added a new health care entitlement, few Americans are even bothering to listen. In reality, the harm this tax increase will inflict on jobs and gross domestic product will strongly outweigh any presumed boost in tax revenues.
American businesses are sitting on top of a record $2 trillion in cash — money that could be spent hiring more workers, funding new projects or paying out dividends to investors. But right now these dollars remain stuck on the sidelines.
Already grappling with weak demand for goods and services, businesses of all sizes have five main costs and expenses that impact their bottom lines. Thanks to the agenda in Washington, all are going up, turning the White House's much-touted "Recovery Summer" into the "Summer of Uncertainty."
Here's a look:
- Taxes will jump next year on everything from ordinary income, capital gains, dividends and estates. And with our national debt soaring, the prospect of even more tax increases in the future seems more likely.
- Health-care costs are growing as a result of Obamacare's mandates and inflationary impact on premiums.
- Energy costs remain in limbo as leading Democrats, led by Sen. John Kerry, float the idea of passing cap-and-trade during the lame-duck session of Congress.
- Credit is becoming more expensive and is increasingly out of reach for most small businesses, partly because the 2,300-plus page financial regulatory bill encourages banks to horde their capital rather than lend it.
- Labor costs also threaten to climb higher as labor unions dig in their heels and gear up for another push to pass card check.
In this environment, it's understandable why businesses — which have pared their expenses by laying off over 2 million workers since Congress passed the stimulus in February 2009 — would be reluctant to start hiring again. Hence the disappointing 71,000 jobs created by the private sector last month — a figure too small to keep up with the growth of the workforce, let alone take a bite out of the 9.5% unemployment rate.
No matter how much money President Obama borrows and spends, our economy simply will not recover until small, medium and large businesses have the confidence to put Americans back to work.
Republicans categorically oppose hiking taxes in times of economic crisis. For the past 19 months, we have offered better alternatives to the stimulus, cap-and-trade and the health care overhaul that keep the growth of government in check. We have taken a scalpel to the budget and offered up hundreds of billions of dollars of spending cuts. I don't believe any American thinks that this $3 trillion is being well spent.
Next year, President Obama is going to preside over one of the largest tax increases on families and small businesses in American history. How his administration has convinced itself that this is a good idea right now is beyond comprehension.
Mr. President, the federal budget is teeming with waste. If you want to rein in the deficit, Republicans welcome you to sit down with us and go line by line through the budget to cut needless spending. But don't impose sweeping tax hikes that will only make a bad economic picture much worse.
The Largest Tax Hikes in History Coming in 2011
July 1, 2010Americans for Tax Reform - 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 20 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.
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