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SmartMoney: how the the expiration of the Bush tax cuts affects you

Discussion in 'BBS Hangout: Debate & Discussion' started by basso, Jul 8, 2010.

  1. basso

    basso Member
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    The Bottom Line

    The Bush tax cuts scheduled demise next year will raise the tax bill of nearly every taxpayer...

    [rquoter]How the Expiring Bush Tax Cuts Affect You
    by Bill Bischoff
    Wednesday, July 7, 2010


    The so-called Bush tax cuts are scheduled to expire at the end of the year. Although some of the cuts retain bipartisan support in Congress and may yet be extended, as of now, Washington has some severe changes in store for you and your family.

    Higher Tax Rates for All

    You may have been led to believe that only individuals in the top two brackets will face higher federal income taxes when the Bush cuts go bye-bye. Not true! Unless Congress takes action and President Obama goes along, rates will go up for everyone -- not just a sliver of the wealthiest Americans. The current six rate brackets of 10%, 15%, 25%, 28%, 33% and 35% will be replaced by five new brackets with the higher rates of 15%, 28%, 31%, 36% and 39.6%. Just a few months ago, it seemed like a safe bet that Congress would make a fix to keep the existing 10%, 15%, 25% and 28% rate brackets to help out lower and middle-income folks. That bet is now looking iffy.

    Higher Capital Gains and Dividends Taxes for All

    Right now, the maximum federal rate on long-term capital gains and dividends is only 15%. Starting next year, the maximum rate on long-term gains will increase to 20%. The maximum rate on dividends will skyrocket to 39.6% unless action is taken to limit the rate to 20%, as the president has repeatedly promised. Plan on 39.6%, and hope I'm wrong.

    Right now, an unbeatable 0% rate applies to long-term gains and dividends collected by folks in lowest two rate brackets of 10% and 15%. Starting next year, those folks will pay 10% on long-term gains and 15% and 28% on dividends (compared with 0% now) unless a change is made. Otherwise, taxes on long-term gains and dividends will go up for everyone.

    Return of the Marriage Penalty

    Right now, the standard deduction for married joint-filing couples is double the amount for singles. For this, we can thank the Bush tax cuts, which included several provisions to ease the so-called marriage penalty. The penalty can force a married couple to pay more in taxes than when they were single. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles unless Congress takes action and the president approves. We don't know if that will happen. If not, lots of lower and middle-income couples will face higher tax bills.

    Now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as those for singles. That ratio helps keep the marriage penalty from biting lower- and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills, unless a change is made.

    Return of Phase-Out Rule for Itemized Deductions

    Before the Bush tax cuts, a nasty phase-out rule could eliminate up to 80% of a higher-income individual's itemized deductions for mortgage interest, state and local taxes, and charitable donations. The rule was gradually eased and finally eliminated this year. Next year, it will be back in full force unless Congress takes action -- which is unlikely. So if you itemize and have adjusted gross income above about $170,000 ($85,000 if you use married filing separate status), be ready for this phase-out rule to take a toll.

    Return of Phase-Out Rule for Personal Exemptions

    Before the Bush tax cuts, another nasty phase-out rule could eliminate some or all of a higher-income individual's personal exemption deductions. The rule was gradually cut back and finally eliminated this year. But it will be back with a vengeance next year unless Congress blocks it. So be ready for another tax hike if your adjusted gross income exceeds about $252,000 if you file jointly; about $168,000 if you're single; about $210,000 if you're a head of household; or about $126,000 if you use married filing separate status. (For 2010, personal exemption deductions are $3,650 each, and they will be about the same next year.)

    The Bottom Line

    The Bush tax cuts don't just offer tax relief to the wealthiest Americans. They offer it to just about anyone who pays federal income taxes. Their scheduled demise next year will raise the tax bill of nearly every taxpayer, unless Congress makes changes and the president jumps on board.[/rquoter]
     
  2. Mulder

    Mulder Member

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    Sorry but I don't come close to these numbers so Boo Freakin' hoo.
     
  3. rhadamanthus

    rhadamanthus Member

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    Progressive tax system is progressive.

    woooo.
     
  4. GladiatoRowdy

    GladiatoRowdy Member

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    Severe is much too strong a word for the tax changes in store for the VAST majority of taxpayers, as I will detail below.

    What the writer ignores is the fact that the people in those lower tax brackets do not pay much, if any, income tax at all right now. Many of them get refunded far more than they ever put into income tax because of the Earned Income Credit (EIC) and if you make the median income or below, there is no way on God's green Earth that you will pay more income taxes than you did for 2010.

    IOW, the marginal tax rate numbers are increasing, but those rates have little to nothing to do with how much someone in the lower brackets actually pays. Now, some of these lower income Americans may get less in EIC, but conservative writers won't mention that because getting rid of EIC is their wet dream.

    The writer again fails to mention some pertinent information. The folks in the lowest two tax brackets receive somewhere between little and no income from capital gains and dividends. These people are scraping to get by and are living paycheck to paycheck. With few exceptions, the only investments these people have are 401k, IRAs, and mutual funds, which won't be taxed for many decades in most cases.

    This is a slightly bigger issue that I personally believe will get fixed before next year. Even if it doesn't, the people who this writer is, on the surface, addressing won't be heavily affected for the same reason stated above: they don't pay income tax. There might be some reductions in these people's EIC, but I'm not a believer in EIC anyway so that is a good thing from my perspective.

    This paragraph talks about the top 3% of income earners in the United States, the people who got the lion's share of the Bush tax cuts in the first place. If it were up to me, I would be raising taxes on these people, not just letting the Bush cuts expire.

    Now you are talking about the top 1% of incomes, I feel the same way as for the top 3%, as described above.

    The Bush tax cuts offered a disproportionate amount of tax relief to the wealthiest Americans and nearly none to the poorest. The biggest tax cut received by the people in the lowest three income tax brackets were the rebates.

    So, the bottom income earners might see a $10 reduction in their EIC next year. What a great reason to roll back the biggest giveaway to the rich since Ronald Reagan's tax cuts. :rolleyes:
     
  5. Major

    Major Member

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    The bigger thing that the writer ignores is that both Congress and Obama have already agreed that most of these tax cuts, will be extended. The only part in dispute is whether the top brackets get extended. So, to make things looks scary, he assumes a scenario that has a 0% chance of occurring.

    Not surprising that basso would pick this article in his anti-Obama crusade given that the facts of reality don't line up with him.
     
  6. Qball

    Qball Member

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    I'll gladly take a .5% tax increase if it means that the rich get 10% increase. :grin:
     
  7. GladiatoRowdy

    GladiatoRowdy Member

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    If you make less than $50k, you won't even see that much of a net tax increase.
     
  8. rjh2002

    rjh2002 Member

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    Six Months to Go Until The Largest Tax Hikes in History
    From Ryan Ellis on Thursday, July 1, 2010 4:15 PM


    In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:

    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.
     
  9. Qball

    Qball Member

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    Again, this is not a rate hike. It's just letting a tax-cut expire like it was meant to.
     
  10. mc mark

    mc mark Member

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    If it means every American in this great country is covered with health insurance, I will gladly pay higher taxes!
     
    1 person likes this.
  11. Major

    Major Member

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    Hey, another myth perpetuated as fact by a gullible or intentionally uninformed poster. I'm shocked!
     
  12. rhadamanthus

    rhadamanthus Member

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    If you don't want to pay taxes, you need to cut spending. Neither party does that. Consequently, mature and responsible people and politicians make attempts to pay for it, lest we collapse per Toqueville.

    The real issue in my mind is not that I pay taxes for "government services" - that's logical. The problem is that, in America, "government services" is really just doublespeak for "corporate hand-outs". I pay so that someone much richer than me can get more rich. It's a corrupt inverse socialism.
     
  13. GladiatoRowdy

    GladiatoRowdy Member

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    This article is so stupid on so many levels that it isn't even funny...

    In 1916, the top marginal tax rate was 15%. In 1917, that rate was raised to 67%.

    The writer is lying to you and you bought it.
     
  14. Mulder

    Mulder Member

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    Plus there is no link to the site which it came from. http://www.atr.org/

    Americans for Tax Reform is an advocacy group whose goal is "a system in which taxes are simpler, flatter, more visible, and lower than they are today. The government's power to control one's life derives from its power to tax. We believe that power should be minimized." Its founder and president is Grover Norquist, an influential conservative advocate.

    Norquist favors dramatically reducing the size of the government.[11] He has been noted for his widely quoted quip: "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub."[26]

    He has also stated, "Cutting the government in half in one generation is both an ambitious and reasonable goal. If we work hard we will accomplish this and more by 2025. Then the conservative movement can set a new goal. I have a recommendation: To cut government in half again by 2050".[27] The Americans for Tax Reform mission statement is "The government's power to control one's life derives from its power to tax. We believe that power should be minimized."[28]

    Norquist is the author of the book Leave Us Alone: Getting the Government's Hands Off Our Money, Our Guns, Our Lives,[29] published on March 11, 2008 by HarperCollins. He has variously served as a monthly "Politics" columnist and contributing editor to The American Spectator.[30]

    From wiki...

    Political positions

    The primary policy goal of Americans for Tax Reform is to reduce the percentage of the GDP consumed by the government.[8][10] ATR states that it "opposes all tax increases as a matter of principle."[11] Americans for Tax Reform seeks to curtail government spending by supporting Taxpayer Bill of Rights (TABOR) legislation[12] and transparency initiatives,[13] and opposing cap-and-trade legislation[14] and Democratic efforts to overhaul health care.[15]

    ATR is a member of the Cooler Heads Coalition, which takes the position in the global warming controversy that "the science of global warming is uncertain, but the negative impacts of global warming policies on consumers are all too real". ATR supported the Comprehensive Immigration Reform Act of 2006 and continues to favor a comprehensive immigration reform bill.[16]
     
  15. insane man

    insane man Member

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    why in gods name shouldn't dividends be taxed as ordinary income like they had always been?
     
  16. Pushkin

    Pushkin Member

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    As someone who invests in dividend stocks I agree with you. However, I think the problem is the double taxation of dividends. I think the solution is to not tax corporations on dividends paid. I also think that capital gains should be taxed at ordinary income levels, but that there should be some adjustment to take into account inflation over the time period the asset was held.
     
    1 person likes this.
  17. glynch

    glynch Member

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    Most Americans have capital gains in the range of less than $100 or $200 per year. I would be surprised if even half of Americans have a capital gain at all. There are no capital gains on your house if you buy another one or your retirement accounts unless you withdraw it. Even at 30% the tax on
    $10 o $20k more than most people have outside of retirment accounts capital gain would be $30.00. to $60.00 assuming 1% current interests. Ok, $60 to $120 if you get 2% interest combined checking and savings.


    The author from the WSJ is disengenuous. The Bush tax cuts were designed to insure that almost all Americans got a tax cut, albeit $25.00 while the wealthy got tax cuts in the hundreds of thousands to tens of millions. This was done so the GOP could then fool folks into supporting it. The author is not fooled.
     
  18. MiddleMan

    MiddleMan Member

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    You must spread some Reputation around before giving it to GladiatoRowdy again.
     
  19. pppbigppp

    pppbigppp Member

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    The forth wave: heterosexual marriage banned. Homo only, fools.
     
  20. glynch

    glynch Member

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    This is partially correct but tragically too often the case Oil companies, corporate agriculture etc. get special tax breaks so they aren't taxed like other individuals or businesses. The military industrial complex just gets paid directly by the government. The whole thing has gotten more egregrious with "privitization" in which ordinary government services like food stamp interviewers or military policemen and other suppport staff in Iraq have contracts which go to the buds or contributors.
     

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