Six Months to Go Until the Largest Tax Hikes in History

http://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171

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 twenty 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.

The Wyden-Gregg Bipartisan Tax Reform Bill: Why Congress Should Listen

http://www.heritage.org/Research/Reports/2010/03/The-Wyden-Gregg-Bipartisan-Tax-Reform-Bill-Why-Congress-Should-Listen

Despite protestations that the wealthy benefited the most from the 2001 and 2003 tax cuts, those reductions lowered taxes for all taxpayers and sped up a decades-long trend of moving the tax burden to a declining proportion of upper-income taxpayers. In 2006, the latest year of available data, the top 1 percent of income earners paid more than 40 percent of all income taxes. The bottom 50 percent paid just 3 percent of all income taxes.

On the corporate side, Wyden-Gregg does even better. The bill turns the progressive corporate income tax into a 24 percent flat tax. This lower rate would greatly increase the competitiveness of American businesses and make the United States a more attractive place for new business investment. With a flat rate of 24 percent, the U.S. rate would be below the average 25 percent rate of other developed countries in the Organisation for Economic Co-operation and Development (OECD).

The treatment of retirement savings is one of the strongest points of the Wyden-Gregg bill. The bill expands tax-free savings by consolidating the various forms of IRAs into one Retirement Savings Account and offers a new Lifetime Savings Account. These adjustments will allow families to put away up to $14,000 a year for retirement in addition to what they can save through 401(k) plans. These new opportunities would help families save for retirement and increase the savings rate. Further reducing taxes on all savings, not just for retirement, would encourage even more saving and investing and promote economic growth.

First, it reduces the number of tax brackets and rates for individuals from six to three. It also makes the corporate income tax a 24 percent flat tax. Second, it drastically reduces the number of credits, deductions, and exemptions for families and businesses. Lastly, it completely abolishes the AMT. In addition to reducing complexity, the abolition of the AMT will also remove the threat that the AMT will raise taxes on middle-income families. The AMT is intended to affect only high earners, but the minimum income that designates families for the AMT is not indexed for inflation.

Repealed Death Tax Would Liven Industry

http://www.heritage.org/Research/Commentary/2009/11/Repealed-Death-Tax-Would-Liven-Industry

It is a tremendous burden because, despite appearing valuable on paper, Reliable and other similar businesses do not have sufficient cash available to pay the tax. Reliable has many high-cost assets, such as bulldozers and dump trucks.

Backdoor Taxes to Hit Middle Class

http://ca.news.yahoo.com/s/reuters/100201/us/usreport_us_budget_backdoortaxes

The Obama administration's plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year -- effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.
The targeted tax provisions were enacted under the Bush administration's Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 -- though there has been talk about reinstating the death tax sooner.

Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a "patch" that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year's levels, the tax will hit American families that can hardly be considered wealthy -- the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

• Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;
• The $250 teacher tax credit for classroom supplies;
• The tax deduction for up to $4,000 of college tuition and expenses;
• Individuals who don't itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;
• The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.
  

The President's Bank Reforms Don't Add Up

http://online.wsj.com/article/SB10001424052748704509704575019333516533828.html?mod=rss_opinion_main

First, Mr. Obama has proposed to limit the size of banks or their holding companies, or both. The trouble with limiting the size of these institutions is that no one has the faintest idea what the right size is.


The Glass-Steagall Act, despite what we constantly hear in the media and from people who should know better, still applies to banks; it forbids them from engaging in underwriting or dealing in securities. This should prohibit them from engaging in proprietary trading to the extent that this is dealing in securities. Bank holding companies, however, because they are not banks and not government-backed, can engage in any financial activity, including securities dealing. Why would we prohibit them from doing so when they are using their own funds?

Real-estate loans rose to 55% of all bank loans in 2008 from less than 25% in 1965. These loans will continue to rise in the future, because only real-estate, small business and consumer lending are now accessible activities for banks.

This is not a good trend, because the real-estate sector is highly cyclical and volatile. It was, indeed, the vast number of subprime and other risky mortgages in our financial system that caused the weakness of the banks and the financial crisis. Requiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future.

Want Tax Help? IRS Offers Busy Signal to 3 in 10

http://newsmax.com/US/US-IRS-No-Answer/2010/01/06/id/345526

Only seven in 10 taxpayers calling the Internal Revenue Service for help this tax season are expected to reach a real person — if the agency reaches its service goal.

A report issued Wednesday by an internal watchdog said the lucky ones who get through can expect to wait on hold for an average of nearly 12 minutes.

70% is their service goal!!! No real business would survive with a rate like that.

U.S. to Lose $400 Billion on Fannie, Freddie

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Z5GnTAPcuo

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Wonderful...

A Call to Action to Stem the Mounting Federal Debt

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/40543%20FR_R1.pdf?n=7003

Over the past year alone, the public debt of the United States rose sharply from 41 to 53 percent of gross domestic product (GDP). Under reasonable assumptions, the debt is projected to grow steadily, reaching 85 percent of GDP by 2018, 100 percent by 2022, and 200 percent in 2038.

Interesting article, don't agree with all the recommendations, but the analysis is scary.

Federal Employees Owe Uncle Sam $3B in Unpaid Taxes

http://www.wtop.com/?nid=428&sid=1838232

At a time when the White House is projecting the largest deficit in the nation's history, Uncle Sam is trying to recover billions of dollars in unpaid taxes from its own employees.

Federal workers owe more than $3 billion in income taxes they failed to pay in 2008. According to Internal Revenue Service documents, 276,300 federal employees and retirees owe $3,042,200,000.

The IRS tracks the voluntary compliance rate of federal employees and retirees each year, and each year feds come up short. The one bright spot in this year's report is that after several years of a steady increase, the amount owed by feds is down from the previous year.

Federal employees and retirees owed $3,586,784,725 in unpaid income taxes in 2007.
The documents show delinquent employees from nearly every federal agency with more than 25 employees

Pelosi Endorses ‘Global’ Tax on Stocks, Bonds, and other Financial Transactions

http://www.cnsnews.com/news/article/58099

House Speaker Nancy Pelosi (D-Calif.) endorsed the idea of a “global” tax on stock trades and other financial transactions, saying the estimated $150 billion in annual revenue from such a tax could be used to help fund more stimulus spending.

“I think there would be a market for it among the American people to say that we are all participating in the economic prosperity of our country, and we are all pitching in to continue that prosperity,” said Pelosi.

What a socialist idea. Since when is it my job to contribute to the economic prosperity of our country? That's not my duty as a citizen, nor should it be. She has it completely backwards. You don't force people to be stewards of their country, because people don't want to do that. They want to take care of themselves and their own. The best way to allow them to do that is for the government to get out of the way. The end result is that by individuals pursuing their own selfish interest, the economy as a whole benefits because it is a positive sum game. When you take from one and give it to another, as she calls it: chipping in, it's a zero sum game because one has to lose in order for another to gain.

ObamaCare’s Cost Could Top $6 Trillion

http://www.cato-at-liberty.org/2009/11/27/obamacares-cost-could-top-6-trillion/

One gimmick makes the new entitlement spending appear smaller by not opening the spigot until late in the official 10-year budget window (2010–2019). Correcting for that gimmick in the Senate version, Sen. Judd Gregg (R-NH) estimates, “When all this new spending occurs” — i.e., from 2014 through 2023 — “this bill will cost $2.5 trillion over that ten-year period.”

Another gimmick pushes much of the legislation’s costs off the federal budget and onto the private sector by requiring individuals and employers to purchase health insurance. When the bills force somebody to pay $10,000 to the government, the Congressional Budget Office treats that as a tax. When the government then hands that $10,000 to private insurers, the CBO counts that as government spending. But when the bills achieve the exact same outcome by forcing somebody to pay $10,000 directly to a private insurance company, it appears nowhere in the official CBO cost estimates — neither as federal revenues nor federal spending. That’s a sharp departure from how the CBO treated similar mandates in the Clinton health plan. And it hides maybe 60 percent of the legislation’s total costs. When I correct for that gimmick, it brings total costs to roughly $2.5 trillion (i.e., $1 trillion/0.4).

When we correct for both gimmicks, counting both on- and off-budget costs over the first 10 years of implementation, the total cost of ObamaCare reaches — I’m so sorry about this — $6.25 trillion. That’s not a precise estimate. It’s just far closer to the truth than President Obama and congressional Democrats want the debate to be.

Wave of Debt Payments Facing US Government

http://www.cnbc.com/id/34104722

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.

Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.

Healthcare Reform Tax Would Hit H1N1 Vaccine Manufacturers

http://www.politico.com/livepulse/1109/Reform_tax_would_hit_H1N1_vaccine_manufacturers_.html

In an attempt to illustrate the real world consequences of reform's taxes, Senate Republicans are pointing out a provision that would tax the makers of swine flu vaccines and drugs. The provision raises $2.3 billion annually from drug makers who sell their products through government programs.

Yeah let's get those evil drug companies, it's not like we had any kind of shortage of the H1N1 vaccine.

Americans Taxpayers Spend Millions for Environmental Groups to Sue the Government

http://www.foxnews.com/politics/2009/11/19/tracking-taxes-environmental-lawsuits/?test=latestnews

"The federal government is paying environmental groups to sue the federal government."

The nation's ten largest environmental groups have sued the government more than 3,000 times in a nine-year period, according to legal fund the Western Legacy Alliance, an Idaho-based legal fund that defends ranchers and farmers.

The Environmental Defense Fund has shelled out $69 million in 67 lawsuits over the past nine years. The National Wildlife Federation has spent $97 million on 233 cases. The Wilderness Society has spent $36 million on 150 cases. And the Sierra Club has spent $46 million on 983 cases. That's just a partial list of lawsuits against the federal government over the past nine years, according to the Western Legacy Alliance.

ACORN Baltimore Prostitution Investigation

Transcript: http://www.docstoc.com/docs/11078409/Complete-ACORN-Baltimore-Prostitution-Investigation-Transcript
Story: http://www.foxnews.com/story/0,2933,549001,00.html

Charlie Rangle's Tax Issues

http://online.wsj.com/article/SB10001424052970203706604574376720192072820.html

Earlier this month the Chairman of the tax-writing Ways and Means Committee "amended" his 2007 financial disclosure form—to the tune of more than a half-million dollars in previously unreported assets and income. That number may be as high as $780,000, because Congress's ethics rules only require the Members to report their finances within broad ranges. This voyage of personal financial discovery brings Mr. Rangel's net worth for 2007 to somewhere between $1.028 million and $2.495 million, while his previous statement came in at $516,015 and $1.316 million.

When you're a powerful Congressman and working diligently to increase tax rates to pay for President Obama's health-care plan, we suppose it's easy to lose track of one of your checking accounts. That would be the one at the federal credit union with a balance somewhere between $250,001 and maybe as high as $500,000. And when you're crunched for time and pulling together bills to pass in a rush, we guess, too, that you might overlook several other investment accounts, even if some of them are sizable, such as the ones Mr. Rangel missed at JP Morgan, Merrill Lynch, Oppenheimer and BlackRock.

And now introducing, the guy who writes the tax code! What if you or I did this? I doubt we would be let off so easily.

Economic Cost of High Tax Rates

http://www.taxfoundation.org/publications/show/24935.html

Research on the major changes in tax rates over the last several decades—the lower tax rates enacted in 1981, 1986 and 2001 or the higher tax rates enacted in 1993—finds that the behavioral responses can be large. This research generally finds that for every 1 percent decrease in the after-tax reward from earning income, taxpayers reduce their reported income by about 0.4 percent.

An often underappreciated feature of our tax system is that roughly one-third of all business taxes are paid by owners of flow-through businesses—the sole proprietorships, partnerships, and S corporations that are often small in size and entrepreneurial—when they file their individual tax returns.

Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011

http://blogs.abcnews.com/politicalpunch/2009/02/obamas-budget-a.html

1) On people making more than $250,000.

• $338 billion - Bush tax cuts expire
• $179 billlion - Eliminate itemized deduction
• $118 billion - Capital gains tax hike

Total: $636 billion/10 years

2) Businesses:

• $17 billion - Reinstate Superfund taxes
• $24 billion - Tax carried-interest as income
• $5 billion - Codify "economic substance doctrine"
• $61 billion - Repeal LIFO
• $210 billion - International enforcement, reform deferral, other tax reform
• $4 billion - Information reporting for rental payments
• $5.3 billion - Excise tax on Gulf of Mexico oil and gas
• $3.4 billion - Repeal expensing of tangible drilling costs
• $62 million - Repeal deduction for tertiary injectants
• $49 million - Repeal passive loss exception for working interests in oil and natural gas properties
• $13 billion - Repeal manufacturing tax deduction for oil and natural gas companies
• $1 billion - Increase to 7 years geological and geophysical amortization period for independent producers
• $882 million - Eliminate advanced earned income tax credit

Total: $353 billion/10 years

SURPRISE! 2 Obama administration officials can't guarantee middle-class Americans won't see tax hike

http://finance.yahoo.com/news/2-Obama-officials-No-apf-2491158742.html?x=0&.v=7

"Cannot rule out higher taxes to help tame an exploding budget deficit"

I know a better way to tame an exploding budget deficit...STOP SPENDING MONEY!

Charlie Rangel’s Unpaid Taxes

http://online.wsj.com/article/SB10001424052970203946904574300013592601036.html

"Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it 'the moral thing to do.'"

So is it the moral thing to do to pay one's own taxes?

"Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. 'Every time I thought I was getting somewhere, they’d start speaking Spanish,' Mr. Rangel explained."

But he promised to pay them so all is well and good right?

"Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed."

Well that was just a one time thing due to the language barrier right?

"The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues."

"The Committee of Ways and Means is the chief tax-writing committee of the United States House of Representatives" Source

And this guy is the chairman of the Ways and Means Committee?