Sunday, May 20, 2012

Scheduled end of Bush tax cuts means higher taxes for everyone, not just "the rich"

The Bush tax cuts are set to expire at the end of this year unless Congress acts to extend them and the president agrees to it. If they're allowed to expire, we'll all be paying more in income and other taxes - whether you're "rich" or not.

Here's the breakdown according to a report from Americans for Tax Reform:

Income taxes on the rise for every tax bracket: 
  • The current 10% bracket will be replaced with a 15% bracket
  • The existing 25% bracket will be replaced with a 28% bracket
  • The existing 28% bracket will be replaced with a 31% bracket
  • The existing 33% bracket will be replaced by the 36% bracket
  • The existing 35% bracket will be replaced by the 39.6% bracket

Capital gains and dividends taxes on the rise, too, for everyone who invests:

In the last few decades there has been an incredible influx to the markets by average citizens looking for ways to pay for their kids' college funds, save for retirement and the like. In other words, it's not just the Wall Street wheelers and dealers who play the market.
  • The current maximum federal rate on long-term capital gains and dividends is 15%. If the Bush tax cuts are allowed to expire, that rate will increase to 20% (or 18% on gains from assets acquired after Dec. 31, 2000, and held for over five years), and the maximum rate on dividends will rise to 39.6%.
  • Currently investors in the two lowest brackets don't pay any taxes on long-term gains and dividends. If the Bush tax cuts expire, these people will be paying 10% on long-term gains (or 8% on gains from assets acquired after Dec. 31, 2000, and held for over five years) and 15% and 28% on dividends (compared to zero percent now).

Other areas targeted for increased taxes include married couples whose tax burden was eased under the Bush tax cuts which made their standard deduction double that of single filers. But once the tax cuts expire, married couples' standard reduction rate through joint-files will be less than singles. In other words, married couples will be penalized through taxation simply for being married. That's hardly a way to encourage marriage in our society. The higher taxes will impact lower and middle income couples particularly harshly.

So much for the argument that the "evil" Bush tax cuts only benefit the wealthy. By the way, the above-mentioned increase in taxes are in addition to the ones currently in effect or phasing in courtesy of ObamaCare:

  • The Tanning Tax imposes a new, 10 percent excise tax on getting a tan at a tanning salon. “There is no exemption for tanners making less than $250,000 per year,” says ATR.
  • 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 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 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,” an obviously arbitrary empowerment of IRS agents, says ATR.
Unfortunately it's everyone who will be paying more if the Bush tax cuts are allowed to expire and ObamaCare is not repealed.

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