But the Democratic Party long ago stopped being the party of JFK, who today would be somewhere to the right of George W. Bush. Barring a Democratic epiphany, the largest tax hikes in the history of America will soon take effect courtesy of an unpopular president and a Congress with a 14% approval rating. They will hit a listing American economy in three tsunami-like waves beginning on January 1, 2011.
Americans for Tax Reform has summarized the Democrats’ scheduled tax hikes in three separate tidal waves, the first of which will hit shore on January 1, 2011:
Bush Tax Cuts Expire. Congress didn’t even have the strength of character to stay and vote on extending the Bush tax cuts before running home to protect their professional political careers. These tax cuts all expire on January 1, 2011. Thereafter, the top income tax rate will rise from 35% to 39.6%, the same rate at which two-thirds of small business profits are taxed. The lowest rate will rise from 10% to 15%. All the rates in between will also rise. Somewhere I seem to recall a promise about tax cuts for 95% of “working families.”
Higher Taxes on Marriage and Family. The “marriage penalty” (narrower tax brackets for married couples) starting with the first dollar of individual 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.
Death Tax Returns. 2010 is a great year to die; there is no death tax. For those dying on or after January 1, 2011, however, there is a 55% top death tax rate on estates over $1 million. A person leaving behind a home and a 401k could easily pass along a death tax bill to their family.
Higher tax rates on savers and investors. The capital gains tax will rise from 15% this year to 20% in 2011. The dividends tax will rise from 15% this year to 39.6% in 2011. These rates will rise another 3.8% in 2013.
The second wave — summarized by Joan Pryde, senior tax editor for the Kiplinger letters — will follow closely on the heels of the first.
Obamacare will be the focus of congressional wrangling over the next two years, but it is unlikely to be repealed in that time. There are over 20 huge and completely new taxes contained within the new health care law which was hurried through Congress without being read and passed against the will of the American people. Several will first go into effect on January 1, 2011.
The “Medicine Cabinet Tax.” Under Obamacare, the ability to use pre-tax dollars from health savings accounts, flexible spending accounts, or health reimbursement accounts to purchase non-prescription, over-the-counter medicine will be a thing of the past.
The “Special Needs” Kids’ Tax. There will be a new cap on flexible spending accounts of $2500 where there currently is no limit. This will hit parents of special needs children particularly hard. Tens of thousands of parents with special needs kids currently use FSAs to pay for their kids’ educations — which can add up to tens of thousands of dollars per year.
The HAS Withdrawal Tax Hike. The health care bill Nancy Pelosi told us we’d have to pass to see what was in it increases the additional tax on non-medical early withdrawals from a health savings account from 10% to 20%, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10%.
The third wave will ensnare an additional 28 million Americans and countless small businesses.
The Alternative Minimum Tax and Employer Tax Hikes. The AMT, which was originally intended simply to make sure that wealthy taxpayers didn’t use tax shelters and other tactics to avoid having to pay any taxes at all (a good start for an argument for a flat tax), affected nearly 4 million families last year. Starting in 2011, it will affect over 28 million families. According to the leftist Tax Policy Center, Congress’ ineptitude and failure to index the AMT will result in an explosion of AMT taxpaying families, each of which will have to calculate their tax burdens twice, and pay taxes at the higher level.
Small Business Expensing Is Slashed and 50% Expensing Disappears. Obama doesn’t understand that small businesses can normally expense (rather than slowly deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut 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.” The effect is a huge tax and an additional expense to the businesses which create jobs.
Tax Benefits for Education and Teaching Slashed. The deduction for tuition and fees will no longer be available. Tax credits for education will be limited and teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut, as will employer-provided educational assistance. The student loan interest deduction will be disallowed for hundreds of thousands of families.
Charitable Contributions From IRAs Disappear. Under current law, an IRA can contribute up to $100,000 per year directly to a charity without penalty. This contribution also counts toward an annual “required minimum distribution.” Not any more, thanks to a compassionate and ultra-liberal Congress.
The Health Care Tax That Wasn’t. Remember when your president told you straight-faced that when Americans are required to obtain health insurance or pay a penalty it wasn’t a tax? He lied. In defending the Obamacare mandate in court, Obama and his army of lawyers are now defending the requirement as an exercise of the government’s “power to lay and collect taxes.” How’s that hope and change working out for everybody? I thought everybody making less that everybody making less than $250,000 per year wouldn’t see an increase in their taxes.