Skip to comments.Tax Increases on the Horizon
Posted on 07/12/2010 8:05:02 AM PDT by Kaslin
Democrats in Congress havent made any moves to extend the Bush tax cuts of 2006, so workers of all income levels can expect to see a 5% increase in their income taxes, and additional tax increases from a number of other areas.
The taxes affected include the capital gains tax, the alternative minimum tax, education deductions, sales tax exemptions. They also include small tax increases, like a rollback in tax breaks for tuition expenses and donations of books to public schools.
"If you believe the current consensus, we could potentially see the top income tax rate hiked back up to 39.6%, an attempt to reinstate the death tax at something like 45%, and the end of the lower 15% rate on capital gains and dividends, said Andrew Moylan, director of government affairs at the National Taxpayers Union. That's on top of a string of other tax hike proposals pushed by Democrats, like a cap-and-trade national energy tax or a financial transactions tax."
Its unlikely that Democrats will stop the tax cuts from expiring, but if they do, they wont make a move until after the November elections. That allows them to punt on the issue when votes are at stake, and maintain high spending while appearing to be fiscally responsible.
Some Democrats are still making motions to fulfill President Obamas promise that tax rates would not be raised on those making under than $250,000 a promise long since broken after Obamacare by cooking up ways for lower-income earners to be exempt from those tax increases. Like most other Democratic policy proposals, no clear plan is on the table.
If allowed to expire unconditionally, the Bush tax cuts would bring in a new $4 trillion over the next 10 years, providing a ready source of funding for President Obamas ever-extending federal programs, but also taking a significant chunk out of the national debt. Thats one reason Democrats are giving to as a reason behind their push to let these tax cuts expire; they believe that its hypocritical to want to lower taxes if one is legitimately concerned about higher deficits. Donald Marron at the Brookings Institution explains.
Its hard to imagine that spending restraint alone can solve Americas long-run fiscal woes. Facing an aging population and rising health care costs, the federal government will continue to expand even if policymakers take serious steps to trim spending, wrote Marron in an analysis this week. Cutting back on loopholes and other tax expenditures, taxing carbon emissions, introducing a value-added tax all of these deserve attention in case America decides that it wants to finance a substantially larger federal government.
But Republicans question why Democrats would effectively increase taxes when the economy is in the pits and millions of Americans are out of work. The answer is simply because they believe that higher taxes dont curb growth. Thats the root of the problem, says Moylan.
We could eliminate our deficit and create a surplus tomorrow by enacting a $2 trillion tax hike immediately, but that wouldn't be responsible and it sure wouldn't be smart, he said. Seeing as the federal budget has doubled in little more than a decade, it's clear that Washington has a spending problem, not a revenue problem."
The idea that increased tax revenue will do anything about the deficit is ludicrous. Even with any extra revenue, government will simply continue spending more than it takes from us.
As soon as runaway inflation kicks in from all these trillions in government spending the past year, the tax increase will pale in comparison to the real costs we will all face.
Invest your cash in commodities and hang onto your debt. We’re in for a wild ride.
Don’t forget the deficit commission report led by Alan Simpson the Obama tax collector. Expect the lame duck congress to propose extending the tax cuts for those that didnt pay taxes under Bush, yet mainly voted democrat. And how will RINOs respond?
I think this administration knows full well that higher rates will decrease total revenue. Why then allow the higher rates? Because the whole objective is not to increase revenue but to keep people as poor as possible and thus more dependant on the government and big government programs. Ultimately the left wants government to be the only employer.
I could understand the loss of the Bush cuts if and only if the govt was going to substantially decrease spending i.e. only spend for defense and constitutional paramaters only. This is just throwing more money at the out of control gambler they get more they will spend more they cant and dont want to control themselves.
My Dad just turned 59 and a half, should he cash out his 401k before dec 31 to avoid the extra tax?
Honestly, while the future tax increases are ghastly...its something else that is killing jobs today.
Society is over-regulated, for one thing. Doing something as simple as renting a parking lot in Georgia means complying with local water runoff and landscaping laws for the new renter that the prior renter was exempt from due to being grandfathered.
So while everyone *wants* to blame the federal government...the local level shares in the blame for killing jobs.
Another problem is a lack of credit availability. Globally, credit availability has been cut to half today what it once was at its peak in 2006. This is causing some bizarre behavior, such as gas stations having to order half-fuel deliveries twice a month because they no longer have the credit to pay for a single full monthly delivery.
Federal regulation is a problem, too. It costs $3 to $4 million to get an old drug approved by the FDA after its 30 or 40 year old exemption from way back then runs out today. In other words, long-used drugs have to go through an approval process from Hell in order to make new sales.
Tort is another problem. Look at Chinese drywall. The Chinese stuck industrial waste into drywall that they then shipped around the world to unsuspecting customers. Well, each country is suing the unknowing businesses who bought the tainted drywall...leaving the Chinese manufacturers unsued.
To avoid being sued, you have to move your manufacturing to China. Lawyers refuse to sue the Chinese. Of course, theyll sue American businesses into the ground...gleefully.
Well, rinse and repeat that cycle long-enough and youre going to get a lot of new manufacturing in China...at the expense of everywhere else.
So the unfair lawsuit climate gives the Chinese an edge in global competition.
And moving jobs out of the U.S....is...wait for it...a jobs killer. All because greedy tort lawyers only go for the easy-to-sue U.S. companies...leaving Chinese firms alone.
So this focus on future taxes is mis-guided. Yes, the future tax increases will be bad when Bushs tax cuts expire next year...but weve been losing jobs due to a fall in credit availability, over-regulation (especially at the local level), and tort for the past 3 years already.
A 5% increase in income taxes would raise my income taxes from $10.00 tax per $100.00 earned to $10.50 tax per $100.00 earned, moving me from the 10% tax bracket into the 10.5% tax bracket, which is not too bad. If they move me from the 10% tax bracket to the 15% tax bracket that will increase my taxes by 50%, which is awful.
It will be a heckuva lot more than a 5% increase in their income taxes. If your tax rate is 10% and it increases to 15%, then the tax on the last dollar of income increased by 50% - not 5%. and since that 10% tax bracket is the lowest tax bracket, the lowest income level of tax payers will see a 50% increase in their income taxes.
The idea that letting the tax cuts expire will bring in new revenue assumes that THIS TIME it will be different from every other time in history and that this huge tax increase will not stifle the economy.
Well, since there was no such thing as a 10.5% tax bracket before the Bush tax cuts, allowing the Bush tax cuts to expire will not change the tax bracket from 10% to 10.5% but rather from 10% to 15%. The lowest tax brackets will have the largest increase (50%) in their taxes on a percentage basis.
“We could eliminate our deficit and create a surplus tomorrow by enacting a $2 trillion tax hike immediately,...”
Let’s see - our current population is about 300 million. Assume very roughly about a third of those are children, which brings the number down to about 200 million, about half of whom don’t pay any taxes at all, leaving 100 million or so taxpayers - very roughly- from whom to extract that $2 trillion.
Two trillion split 100 million ways is $20,000 apiece. Now high tax bracket people would pay a lot more, and low bracket people substantially less, but that’s a ballpark figure for the kind of tax increase you’d need to clear a two trillion dollar per year problem from the books.
That's what people don't understand; the dems are counting on the sheeple's widespread "innumeracy." So, when you explain this to people, you have to make sure they understand that it means they'll pay their what they now pay, plus 1/2 of that amount.
I think it's the 15% bracket that get's hit hardest -- if I'm hearing this right-- don't they go from 15% to 28%?
The taxes will be bad, but worse will be the effect on our economy.
At least I think so. But here's a counter-argument we might expect to hear from the left:
"Since companies and individuals will pay higher taxes, there will be greater incentives for them to spend more of their profits in order to reduce the taxable portion. This will lead to increased capitalization and hiring. " Or words to that effect.
Besides the reduction in allowable deductions, and the difficulties such companies will face securing financing for large scale improvements, how does one answer such claims?
Just trying to prepare for future discussions.
The people in the lower brackets won’t be affected because Obama said if you make less than $250,000 your taxes won’t go up!
That is an ignorant argument. Firms do not operate from a motive of reducing tax liability; they operate from a motive of maximizing postitive cash flow. Capitalization and hiring are cash outflow propositions. While capitalization can provide non-cash expense allocations that can reduce tax liability, in an environment of extreme uncertainty regarding financial "reforms" and new taxes, a financial manager would have to be insane to propose increased capitalization now.