The Tax Tsunami On The Horizon

The Tax Tsunami On The Horizon

Many voters are looking forward to 2011, hoping a new Congress will put the country back on the right direction. But unless something's done soon, with the start of the new year we will also see a large number of tax hikes — including a return of the death tax. More tax increases (in spite of our President's claim) than you can imagine. Read on.

Through the end of this year, the federal estate tax rate is zero — but as of midnight Dec. 31, the death tax returns — at a rate of 55% on estates of $1 million or more. Estates that our parents and grandparents toiled to acquire and the intervening years increased with the growth of real estate value. And, don't forget, they paid taxes during that time.

The return of the death tax, however, isn't the only tax problem that start on Jan. 1. Many other tax cuts from the Bush administration are set to disappear and a new set of taxes will take their place. And if you think it is justt the rich who will pay . . . . you're wrong.

The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket — 25% — will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%. If you doubt this, please feel free to check it out.

The marriage penalty also makes a comeback (please tell me what is 'fair' about that?), and the capital gains tax will jump 33% — to 20% from 15%. The tax on dividends will go all the way from 15% to 39.6% — a 164% increase.

Both the cap-gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8% Medicare levy on individuals making more than $200,000 a year and joint filers making more than $250,000. Other tax hikes include: halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers.

Letting the Bush cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020.

But even more tax headaches lie ahead. This "second wave" of hikes, as Americans for Tax Reform puts it, are designed to pay for ObamaCare and include:

The Medicine Cabinet Tax. Americans "will no longer be able to use health savings account, flexible spending account, or health reimbursement pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin)."


The HSA Withdrawal Tax Hike. "This provision of ObamaCare increases the additional tax on nonmedical early withdrawals from an HSA from 10% to 20%.

Brand Name Drug Tax. Makers and importers of brand-name drugs will be liable for a tax of $2.5 billion in 2011. The tax goes to $3 billion a year from 2012 to 2016, then $3.5 billion in 2017 and $4.2 billion in 2018. And guess who pays the new drug tax? We do in the form of higher prices.


Economic Substance Doctrine.
The IRS is now empowered to disallow perfectly legal tax deductions and maneuvers merely because it judges that the deduction or action lacks 'economic substance.'

A third and final (at least as presently known) wave consists of the alternative minimum tax's widening net, tax hikes on employers and the loss of deductions for tuition:

• The Tax Policy Center, certainly not a right-wing group, says that the failure to index the AMT will subject 28.5 million families to the tax when they file next year, up from 4 million this year.

• Small businesses can normally expense (rather than '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'.

• Further there are "literally scores of tax hikes on business that will take place, plus the loss of some tax credits. The research and experimentation tax credit will be the biggest loss. This will inevitably cost jobs.

• The deduction for tuition and fees will no longer be allowed and there will be limits placed on education tax credits. Teachers won't be able to deduct their classroom expenses and employer-provided educational aid will be restricted. Students and families will no longer be allowed to deduct student loan interest.

Then there's the tax on Americans who decline to buy health care insurance (the administration loudly claims this wasn't a tax but now argues in court that it is) plus a 3.8% Medicare tax beginning in 2013 on profits made in real estate transactions (this new tax hidden in the ObamaCare Bill).

Not all Americans may fully realize what's in store come Jan. 1. Most are simply not informed on this issue but they should have a pretty good idea by the mid-term elections.

Fifty-one percent of respondents favored making the Bush cuts permanent vs. 28% who didn't. Republicans were more than 4 to 1 and Independents more than 2 to 1 in favor. Only Democrats were opposed, but only by 40%-38%.
The cuts also proved popular among all income groups — despite the Democrats' oft-heard assertion that Bush only provided "tax breaks for the wealthy. Fact is, Bush cut taxes for everyone who paid them.


Maybe, just maybe, Americans will remember that — and hopefully will not forget come Nov. 2.

To everyone who believed that 'no more taxes on anyone earning less that $250,000 --- not one dime more' ---

---------Just how naive can you be-----???