It is now virtually certain America will see a wave of tax hikes in just three short months. Congress can still take action between now and January 1st, 2011, to stop the automatic increase, but the odds of them doing so dwindle by the day. The following is what the current law dictates will happen on January 1st.
Income Taxes Climb
The existing 10% bracket is eliminated. The new low bracket will be 15%. The existing 25% bracket will be replaced by a new 28% bracket. The existing 28% bracket will be replaced by the new 31% bracket. The existing 33% bracket will be replaced by the new 36% bracket. The 35% bracket will jump to 39.6%.
Higher Capital Gains Taxes
Capital gains rates will increase on long term investments from 15% to 20%.
Extraordinary Increases in Dividend Taxes
The taxes on dividends will jump from 15% up to 39.6% as they are taxed as ordinary income.
Marriage Penalty Worsens
Married couples will once again pay a higher amount of tax than a single person.
Itemized Deduction and Personal Exemption Phase Out Roars Back to Life
Itemized deductions are those few precious deductions given to individuals on their personal tax return such as mortgage interest, state and local taxes, charitable deductions. Taxpayers will lose $1 of itemized deductions for every $3 of AGI in excess of the threshold. Taxpayers above the threshold amounts will also lose their personal exemptions.
Estate Taxes Return and Surge
Estate taxes will return from the “grave” of repeal where they are currently 0% and spike with a vengeance to 55% on all amounts above a $1 million exemption.
Gift Taxes Climb
The gift tax rate is currently 35% on all amounts above $1 million. The gift tax rate will climb to 55% and the exemption will stay at $1 million.
Despite the politics at play, the lower tax rates we currently have do not just help the “rich”; rather they help everyone who pays federal income taxes. Over 40% of the voters in the 2008 US general election did not pay any federal income tax into the system. It is estimated that in the 2010 mid term elections close to 50% of the voters will not be paying any federal income tax into the system. The White House’s proposals to “only” raise taxes on persons making above $200,000 single or $250,000 married are effectively tax increases on the very persons who are paying the vast majority of income taxes currently. That is you.
We encourage you to do something about this at the ballot box on November 2nd.