Back Door Taxes And the Elimination of the Wire
Mon Feb 1, 4:09 PM
By Terri Cullen
NEW YORK (Reuters.com) –The Obama administration’s plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.
In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year — effectively a tax hike by stealth.
While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.
The targeted tax provisions were enacted under the Bush administration’s Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.
If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.
Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 — though there has been talk about reinstating the death tax sooner.
Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a “patch” that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.
Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year’s levels, the tax will hit American families that can hardly be considered wealthy — the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.
Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:
* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;
* The $250 teacher tax credit for classroom supplies;
* The tax deduction for up to $4,000 of college tuition and expenses;
* Individuals who don’t itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;
* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.
On a side note, I just wanted to add that the Obama administration has NEVER said they wouldn’t hike the taxes on the middle class.
This picture was taken Sunday, August 2nd, 2009. In this interview, Timothy Geithner refused to give a definite “no” to a campaign pledge on middle class tax hikes. He also stated that tax hikes on the middle class was one of those “hard choices” that was needed to fix economy over the long haul. For you all you precious Obamanites, do you remember his pledge on the campaign trail that taxes would stay the same or go down for 95% of Americans? The reaction of both Treasury Timothy Geithner and Lawrence Summers (Head Of Obama’s National Economic Council) back in August of 2009 foretold this day when they refused to agree to stick to the campaign promises made by Barry.
”We have to bring these deficits down very dramatically,” Geithner told ABC’s “This Week”.
Well, Mr. Geithner. Try taking a REALLY close look at the people you work with. Pelosi’s spending is way out of control (traveling to and from California, Copenhagen). Obama’s spending is out of control (dates, golfing, shopping, holidays). I have said time and time again, there are some easy things to do to help our economy without further taxing the middle class, or, for that matter, entities that are just going to pass on the cost of taxes applied to them, on to their customers, the middle class (banks and oil companies).
Take all the religious entities claiming tax-exemption status off the list. If they are not a direct charity helping the public (like the missionaries), then take them off and make them pay their fair share of the taxes. That means all the mosques, temples, and especially the churches. There’s a church on the corner of Old Hickory Blvd and Gallatin Road. They own so much of the land there, including a set of apartments that they renovated into a retirement community. How this works is that the elderly folks by the apartment. But when they die, it goes back to the church to resell. And then there are all those fly-by-night churches that are here this month and gone the next. The Catholic Church is one of the most powerful entities in the world. They can afford to pay the taxes.
Put a straight 13-17% tax on EVERYONE. That will eliminate all those tax loops, and reduce the need for size of the IRS.
Reduce the pay and budget of all those working in Congress and the Executive Administrations. While everyone else needs to budget their budgets, why do these two groups of people always think they are the exception to that rule? I sit here and read the suggested cost of Pelosi’s weekly trip to and from California. I read about Obama having tee’d off more times in one year than Bush did in 4 years, or about the cost of his Christmas party (that would have been cheaper to spend at Camp David or the White House where it would have been nice for staff to have the holidays off to spend with their families), or Michelle’s shopping sprees. I think that the strings of the golden parachutes need to be cut. Let them live on the economy that they created. Do they forget? Serving our country is a privileged, not a career. Time to give back more than you are taking, people.
Make welfare recipients earn what they are receiving. While people felt what the Lt. Governor of SC Rudolph Andreas “Andre” Bauer said was “way out of line” in comparing those receiving welfare to stray animals, and while the metaphor was kind of shady, what he was intending to mean was absolutely in line. If people are going to receive governmental aid, tax payers’ money, then why shouldn’t they earn that? Drug tests, regular training sessions for jobs, home visits, parent-teacher conferences. Generational welfare has got to stop. While not everyone receiving welfare fits into these categories, it is a trend to have more children to receive more aid. The time of taking the path of least resistance on the tax payers’ dime has got to end.
And how about all this cheap, and often dangerous imports coming in from China and sweat shops in third world countries? A revised form of the Morrill Tariff would help US businesses get a foot over the foreign companies. American products are taxed going into other countries, why can we not do the same? This will help reduce the foothold of companies bringing in the dangerous drywall, lead-paint coated children’s toys, tainted hamburger, and poisoned pet food. And what about third world sweat shop products? Wal-Mart knowingly sells products from sweatshops that also exploit child laborers. Time to put an end to this sort of thing. And maybe this needs to wait until the other items on this list are enacted and have been given the time to start working.
The point of me saying all this is that we cannot afford any more taxes. We are literally being taxed to death. There are taxes for living, taxes for dying, and taxes for everything in between. Just like it is always so easy for states to put education on the chopping block when it comes to budgets, and applying more taxes seems to be the magic formula in the solution of the federal governments to the budget issue. There are other avenues, that simply require a bit more determination. NO MORE TAX HIKES!