http://www.investors.com/NewsAndAnalysis/ArticlePrint.aspx?id=541131 The Tax Tsunami On The Horizon Fiscal Policy: Many voters are looking forward to 2011, hoping a new Congress will put the country back on the right track. But unless something's done soon, the new year will also come with a raft of tax hikes — including a return of the death tax — that will be real killers. Through the end of this year, the federal estate tax rate is zero — thanks to the package of broad-based tax cuts that President Bush pushed through to get the economy going earlier in the decade. But as of midnight Dec. 31, the death tax returns — at a rate of 55% on estates of $1 million or more. The effect this will have on hospital life-support systems is already a matter of conjecture. Resurrection of the death tax, however, isn't the only tax problem that will be ushered in Jan. 1. Many other cuts from the Bush administration are set to disappear and a new set of taxes will materialize. And it's not just the rich who will pay. The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket — 25% — will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%. But the damage doesn't stop there. The marriage penalty also makes a comeback, and the capital gains tax will jump 33% — to 20% from 15%. The tax on dividends will go all the way from 15% to 39.6% — a 164% increase. Both the cap-gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8% Medicare levy for individuals making more than $200,000 a year and joint filers making more than $250,000. Other tax hikes include: halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers. Letting the Bush cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020. But even more tax headaches lie ahead. This "second wave" of hikes, as Americans for Tax Reform puts it, are designed to pay for ObamaCare and include: The Medicine Cabinet Tax. Americans, says ATR, "will no longer be able to use health savings account, flexible spending account, or health reimbursement pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin)." The HSA Withdrawal Tax Hike. "This provision of ObamaCare," according to ATR, "increases the additional tax on nonmedical early withdrawals from an HSA from 10% to 20%, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10%." Brand Name Drug Tax. Makers and importers of brand-name drugs will be liable for a tax of $2.5 billion in 2011. The tax goes to $3 billion a year from 2012 to 2016, then $3.5 billion in 2017 and $4.2 billion in 2018. Beginning in 2019 it falls to $2.8 billion and stays there. And who pays the new drug tax? Patients, in the form of higher prices. Economic Substance Doctrine. ATR reports that "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.'" A third and final (for now) wave, says ATR, consists of the alternative minimum tax's widening net, tax hikes on employers and the loss of deductions for tuition: • The Tax Policy Center, no right-wing group, says that the failure to index the AMT will subject 28.5 million families to the tax when they file next year, up from 4 million this year. • "Small businesses can normally expense (rather than slowly deduct, or 'depreciate') equipment purchases up to $250,000," says ATR. "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.'" • According to ATR, there are "literally scores of tax hikes on business that will take place," plus the loss of some tax credits. The research and experimentation tax credit will be the biggest loss, "but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs." • The deduction for tuition and fees will no longer be available and there will be limits placed on education tax credits. Teachers won't be able to deduct their classroom expenses and employer-provided educational aid will be restricted. Thousands of families will no longer be allowed to deduct student loan interest. Then there's the tax on Americans who decline to buy health care insurance (the tax the administration initially said wasn't a tax but now argues in court that it is) plus a 3.8% Medicare tax beginning in 2013 on profits made in real estate transactions by wealthier Americans. Not all Americans may fully realize what's in store come Jan. 1. But they should have a pretty good idea by the mid-term elections, and members of Congress might take note of our latest IBD/TIPP Poll (summarized above). Fifty-one percent of respondents favored making the Bush cuts permanent vs. 28% who didn't. Republicans were more than 4 to 1 and Independents more than 2 to 1 in favor. Only Democrats were opposed, but only by 40%-38%. The cuts also proved popular among all income groups — despite the Democrats' oft-heard assertion that Bush merely provided "tax breaks for the wealthy." Fact is, Bush cut taxes for everyone who paid them, and the cuts helped the nation recover from a recession and the worst stock-market crash since 1929. Maybe, just maybe, Americans remember that — and will not forget come Nov. 2.
The new Republican line is that there's a “Democrat tax hike" on the way. And it's a big 'un: "An unprecedented $3.8 trillion increase" that will affect -- and this is their bold and underline, not mine -- "every American who pays income taxes!" To understand what's going on here, you need to go back 10 years to the passage of the Bush tax cuts. In order to maximize the size of the cuts, Republicans had to minimize the influence of minority Democrats on the package. So they chose to run the bill through the reconciliation process. But that posed some challenges. Budget reconciliation had never been used to increase the deficit. In fact, it specifically existed to decrease the deficit. That's why one of its rules was that you couldn't use it to increase the deficit outside the budget window. Republicans realized they could take that very literally: The budget window was 10 years. So if the tax cuts expired after 10 years, they wouldn't increase the deficit outside the budget window. They'd also have the added benefit of appearing less costly in the Congressional Budget Office's estimates, as the CBO duly scored them as expiring after 10 years, which kept the long-range budget picture from exploding. But the plan was never to have the tax cuts expire. Instead, the idea was that people would get used to the new tax rates, and no future Congress would want to allow a big tax increase, so when the time came, either Republicans in office would extend the cuts or Republicans in the minority would hammer Democrats until they extended them. And that's where we are now: Democrats control the government, so Republicans are screaming about tax increases as a way to get Democrats to extend tax cuts. It's really hard to know where to start with this one. It's not a tax increase passed into law by Democrats. It's a reversion to old tax rates passed into law by Republicans. It's not how law is supposed to work. It's the result of twisting a budget process meant to reduce the deficit so you could use it to massively increase the deficit. And as for the policy itself, it's a fiscal nightmare: No one who professes concern for short-term deficits can argue for the extension of these deficit-financed tax cuts and retain credibility on debt issues. This is a litmus test. It's not Democrats who are trying to pass the largest tax hike of all time, but Republicans who are calling for the largest increase in the deficit in memory. http://voices.washingtonpost.com/ezra-klein/2010/07/republicans_blame_democrats_fo.html
A related story: http://online.wsj.com/article/SB100...01862552246.html?mod=WSJ_hpp_MIDDLETopStories Bush Tax Cuts Roil Democrats Two more Senate Democrats called for extending tax cuts for all earners—including those with the highest incomes—in what appears to be a breakdown of the party's consensus on the how to handle the expiration of Bush-era tax cuts. Sen. Kent Conrad (D., N.D.) said in an interview Wednesday that Congress shouldn't allow taxes on the wealthy to rise until the economy is on a sounder footing. Sen. Ben Nelson (D., Neb.) said through a spokesman that he also supported extending all the expiring tax cuts for now, adding that he wanted to offset the impact on federal deficits as much as possible. They are the second and third Senate Democrats to come out publicly in recent days in favor of extending all the tax breaks for the time being. Sen. Evan Bayh (D., Ind.) made similar comments last week. "As a general rule, you don't want to be cutting spending or raising taxes in the midst of a downturn," Mr. Conrad said. "We know that very soon we've got to pivot and focus on the deficit. But it probably is too soon to cut spending or raise taxes." The comments from the senators represent a departure from what appeared to be an emerging unified Democratic stance on the Bush tax cuts, which held that those for the wealthiest Americans should be allowed to expire.
These tax threads are depressing. The left has raised taxes and fees in almost every way possible- and this is just the beginning. And while tax cuts from the right, in and of themselves, are always welcome, I often wonder if they are really targeting cuts where and when needed or just making political hay. I feel we need to scrap all taxes and fees and just start over.
Here's an oddity. You have 3 Democratic Party senators who'd vote to extend the tax cuts, and 41 republicans. That makes 44 that we know of. If such a bill makes it to the floor, the democrats would filibuster it if it looks like it might pass. It would be Harry Reid's parting gift to the country.
If the dems let the Bush tax cuts expire after all the hopless bungling they have done recently, it'll be a death nail in their coffin. It's bad enough hundreds of billions were givfen to the UAW as a political payoff and billions more in bailout that has really not benefited the common people, and placed this country now into an unreversable ride into insolvency- but to then raise taxes (admittedly, in a back handed way) yet again is a sign of out and out lunacy. It'll never happen.
How about leaving tax rates at lower, reasonable levels and actually getting spending under control? Strange thought.
Geithner: Taxes on Wealthiest to Rise "Mr. Geithner said the White House would allow taxes on top earners to increase in 2011 as part of an effort to bring down the U.S. budget deficit. He said the White House plans to extend expiring tax cuts for middle- and lower-income Americans, and expects to undertake a broader revision of the tax code next year. "We believe it is appropriate to let those tax cuts that go to the most fortunate expire," Mr. Geithner said at a breakfast with reporters." http://online.wsj.com/article/SB10001424052748703467304575383131306753688.html The Republicans might be able to block a bill that only keeps the cuts for those under 250,000 from passing though so basically it seems like we'll have to wait and see who blinks first.
You mean how Health Care legislation was passed by a budget reconciliation process? Is that bill illegitimate too?
I thought it was funny that the dems got some crap for using it in a sneaky way when the repubs used it in a pretty sneaky way 10 years prior. I don't have a nuanced enough understanding of the process to really comment on whether either one is really illegitimate. I'll guess that since there was mostly just light groveling from repubs that it wasn't seen as unacceptable. I'm guessing their use of it for the tax cuts is what led to an expansion of acceptable budget reconciliations use and that the heath care bill will only lead to expanded use by the repubs in the future.
http://blog.heritage.org/2010/03/02...ely-used-procedure-with-serious-consequences/ It amazes me that people treat health care legislation--which in essence nationalizes 1/6th of our economy--as just another bill.
Even Christina Romer thinks tax increases are a bad idea if you want to grow the economy. http://taxprof.typepad.com/taxprof_blog/2010/07/romer-romer-.html
But what does Ben Bernanke know, anyway? http://www.bloomberg.com/news/2010-...-cuts-would-maintain-stimulus-to-economy.html
-- From the Romer study Did you read the Bernanke article any further than the headline? Btw, the dems want to extend the tax cuts for joint filers under 250K and individuals under 200K (i.e. at least some). That might not happen since "Republicans are loath to let taxes on high-income households rise, arguing economic growth should trump deficit concerns. They may even hold the middle-class tax cuts hostage until they get their way." --BusinessWeek I suggest you learn what nationalization actually means. The Postal Service is nationalized. The healthcare system is not.
What does "in essence" mean? Anyhow, there are three sides to this equation. 1. Tax is in essence a taking by the govt. of a % of GDP. If the % is 25% and GDP is $10T, the govt. takes $2.5T, get it? If GDP is $20T, the govt. takes $5T. So you can grow the economy to $20T and have $5T - $3.6T (Obama's budget) = $1.4T to give out as refunds or further tax cuts. The chances of growing GDP to $20T before the debt mounts to an even more ridiculous figure are slim and none. Raising tax rates would only further hurt those chances, but I digress. 2. If GDP is $10T and they need to generate $3.6T to balance the budget, they could raise taxes to 36%. Geez, 36% is about the top tax bracket already, so you're talking about a pretty massive tax increase on everyone to get to that 36% mark. We've never been above 25% or 26% (thereabouts) in history. It'd be a very different country, probably more like Iraq was with Saddam in charge. 3. If GDP is $10T and the tax is 25% of GDP, then they take in $2.5T. How about they spend $2.5T? That balances the budget. What a concept, spend no more than you make! And 25% is absurdly high as it is. Of course, GDP is more like $13T-$14T right now, but the multiples of 10 are easier to see the math without a calculator. And a combination of all three are possible, but raising taxes kills #1 and #2.
Well, let's see what the internet has to say about these tricky words! How does the health care bill "by its very nature" take the health care industry "into the public ownership of the national government?"
