While many people have not lost their jobs over the last year or so, everyone should be prepared to receive a reduction in pay as of January 1, 2011. The hardworking folks at Americans for Tax Reform have the down low:
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%
To put it simply, the average taxpayer will see about a 3% increase in base income tax level. This works out to $300 per $10k of income. Not much, you say? Let’s say someone makes $40k per year. That would be a $1200 increase in base taxation.
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.
If that person listed above who makes $40k also has 3 children, then he will see another $1500 disappear.
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.
No way of knowing if our $40k person would lose a parent or other benefactor, but this injustice deserves a treatise or two all by itself. How under God’s great blue heaven can one justify taking money from someone’s estate simply because they have more than someone else? Remember, the very, very wealthy people (who this tax is supposed to “punish”) are not usually affected by it, or not much. They can afford to hire a phalanx of lawyers and accountants to make sure everything is set aside in trusts and otherwise protected from the grim reaper’s sidekick: the taxman. However, our hypothetical hardworking person’s parents are very much in the group of people who are most hurt by this. Someone starts a business, operates it his entire life and grows it into something which is worth a few million dollars–not that much return for 30 to 50 years of labor–only to see it sold and broken up on his death to satisfy the government’s desire for more.
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.
Wait, you say, our $40k person doesn’t have any capital gains or dividends to worry about. Maybe, maybe not. But one does not have to be insanely wealthy to have investments. I was discussing this with a friend yesterday whose family member is taking a hit on capital gains this year only because next year it will be much worse–and these investments must fund this person’s retirement.
There is more, getting into the various taxes, fees, and other lovely terms which simply come down to the government taking that which it needs to fuel its own boiler, so go read the entire article. Keep in mind before you do that our $40k friend is already down 6.75% of his income before factoring in anything else. How would our $40k friend feel if his supervisor came to him and said that he’d get 6.75% pay cut and that more cuts would be coming?
That’s exactly how I feel–and you should, too.
Thanks to MHH for the link.