In just a few months, a tax tsunami will hit America. It will hit families and small businesses in three great waves on January 1, 2011. The first of the three waves will be outlined here:
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 tax cuts are all scheduled to expire on January 1, 2011.
Personal income tax rates will rise
The lowest rate will rise from 10 to 15 percent, which is a 50 percent increase! All the rates will rise as outlined below. 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).
Itemized deductions and personal exemptions will be phased 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 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, which will hurt people who are taking care of parents or children with special needs.
The return of the Death Tax; this year, there is no death tax, for those dying on or after January 1 2011, the highest estate tax rate is 55 percent.
Higher tax rates on Retirees, Savers and Investors
The capital gains tax on investment income will rise from 15 percent this year to 20 percent in 2011 or an increase of 33 percent.
The dividends will be taxed as ordinary income, which could push the tax rate as high as 39.6 percent or an increase of 164 percent for those in the top tax bracket. These rates will increase another 3.8 percent in 2013.
At the end of the Clinton presidency the economy was in a recession. It was comparatively mild, but sluggish none the less. With the Bush tax cuts, the economy rebounded and was renewed again. If this were the only change to our tax code and our economy we could expect to go back to the sluggishness we were experiencing then; but its not, with these increases we will be plunging deeper into a recession again and this is only the first wave to hit our economic shores.