Certainty of Taxes on Recovery…
The Great Recession meets The Great Tax Hike
As the US economic GDP growth figures continue to be marked downward to 2.5 percent estimate for the 2010 fiscal year, this is not a rate that can sustain or promote a job recovery. To promote job growth requires tax incentives not tax hikes. Given the failed $860 billion in combined government stimulus spending with a debt price tag to be paid through taxation and continued fiscal deflation the economy cannot recover. Americans must be given the tools to get back to work. Capitalism is the water that sustains green shoots of economic activity and government controls its flow and direction. Governments redistribution of wealth and agenda for selective capitol growth and increase in taxation will mark the end of American prosperity as we have known it, and as current economic indicators are trending.
The coup de gras to any economic recovery is taxe increases. The Bush tax cuts will expire at the end of the year and the Obamacare Health taxes will start both resulting in lowering GDP, stopping business development and further deflation and greater unemployment since taxes are a disincentive for job creation.
The Bush Tax Cuts came in 2001 and 2003 and will expire at the end of 2010. All taxpayers will see a sharp rise in their 2011 tax bills unless Congress acts to maintain the cuts and President Obama signs the bill. There is an excellent chance that President Obama will not approve maintaining the existing tax cuts considering his continued expansion of existing and creation of new government programs. This economic philosophy will destroy any economic recovery and extend unemployment and reduce economic activity by the American consumer who is responsible for 70% of domestic spending.
OBAMAS TAX PLAN TO MODIFY BUSH TAX CUTS
Obamas Plan To Cut Taxes
President Obamas plan, if passed this year, would extend the 2001 and 2003 tax relief for taxpayers
making less than $250,000 a year and hike taxes on small businesses and families earning more than $250,000.
OBAMAS PLAN TO RAISE TAXES
Tax Cuts That Create Jobs
The 2001 and 2003 tax cuts that help small businesses create jobs include lower top marginal income tax rates and lower tax rates on capital gains and dividends. Each of these growth promoting policies will expire.
Extended Tax Cuts for Some
Policies that the President wants kept include the 10% tax bracket for low levels of income, the doubling of the Child Tax Credit from $500 to $1,000, marriage penalty reductions, and the 25% and 28% marginal income tax rates. 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.
No Job Creation with Select Extensions
While each of these policies lowers taxes, none will encourage job creation, because they do not increase the incentives for individuals and businesses to work, save, invest, or take on new risk.
Tax Hikes Will Not Create Jobs
Tax hikes on high-income earners will cause the most productive small businesses that provide jobs for the vast majority of workers to cut back on hiring. Higher taxes on high-income earners will also slow investment, which will further inhibit job creation.
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.
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. The 25% bracket rises to 28%, the 28% bracket rises to 31% and the 33% bracket rises to 36%. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.
Backwards Plan to Stimulate Growth
The tax relief Obama wants to keep doesn’t create jobs, while the ones he intends to get rid of do.
Plan Fails Cost–Benefit Analysis
The tax revenue from pro-growth policies that would help small businesses and create jobs pales in comparison to the revenue from the tax relief policies that spread the wealth around.
OBAMACARES NEW AND HIGHER TAXES JANUARY 1, 2011
The Tanning Tax
This went into effect on July 1st of this year. It imposes a new, 10% excise tax on getting a tan at a tanning salon. There is no exemption for tanners making less than $250,000 per year.
The Medicine Cabinet Tax
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 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.
Brand Name Drug Tax
Starting next year, there will be a multi-billion dollar tax assessment imposed on name-brand drug manufacturers. This tax, like all excise taxes, will raise the price of medicine, hurting everyone.
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.” This is obviously an arbitrary empowerment of IRS agents.
Employer Reporting of Health Insurance Costs on a W-2
This will start for W-2s in the 2011 tax year. While not a tax increase in itself, it makes it very easy for Congress to tax employer-provided healthcare benefits later.
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. These major items include:
The AMT will ensnare over 28 million families, up from 4 million last year
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.
In a recent Investor Intelligence Newsletter it was reported that America will head into a double dip recession when the Bush Tax cuts are eliminated and new Obamacare taxes come into effect. These taxes have not yet hit the American public or businesses and when tax day April 15, 2011 comes, the reality of Americas economic situation will be evident. To a society debating political rhetoric, the true consequences of the greatest tax hikes in history during the “Great Recession” will be a stark reality as 1930’s style deflation from Keynesian economic policy causes the American Standard of living to reach levels not seen for 80 years.
Congress may change hands and pass new tax law to lessen the economic severity of these indicated tax increases, but the pen of approval or threat of veto is in the hands of the President. We can only HOPE he will do the right thing and CHANGE economic policy to the one that is presented to him by a new congress in 2011!
Note: Information on tax policy found from several sources; The Heritage Foundation, Report by the Joint Committee on Taxation by Congress, and Ryan Ellis article on Wednesday, July 7, 2010 – The Largest Tax Hike In History .
“In this world nothing can be said to be certain, except death and taxes.”
…………………Benjamen Franklin
