Uncle Sam Could Hike Taxes by Allowing Bush Tax Breaks to Expire

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Uncle Sam just had his 234th birthday, and one thing he might be expecting from you is a present in the form of higher taxes.

With a ballooning deficit, many Americans are anxious that they will be paying more taxes in 2011 – and many might.

If the U.S. Congress does not vote to keep George W. Bush’s tax cuts in the months ahead, some could end up paying thousands of dollars more next year in federal income taxes. Even low- and middle-income families could find the tax man knocking on their doors. They have been paying historically low amounts.

President Barack Obama has said he favors keeping the Bush tax cuts except for those families earning more than $250,000 and individuals making more than $200,000 a year. But unless Congress acts all the tax rates are automatically scheduled to go higher in 2011, even for the poorest Americans. Already, some Democratic legislators are suggesting that higher taxes on families who make $200,000 a year should at least be considered.

If Congress fails to act and the Bush tax cuts automatically expire, changes would take effect Jan. 1, 2011, with the actual taxes due on April 15, 2012, when tax payers file their income taxes for 2011.

Married couples with children could face the biggest hikes as they would have fewer tax credits to offset their yearly payment to Washington. They will also contend with what everyone else faces – potentially paying a higher percentage of their income to Uncle Sam.

Most Republicans want to keep all the Bush tax cuts enacted in 2001 and 2003. The Heritage Foundation, a conservative think tank, asserts that the cuts did not add as much to the deficit as President Obama and other Democrats say.

But President Obama and many Democrats respond that they are only listening to people’s concerns about the deficit: For the deficit to be reduced, some will have to pay more taxes and it is only fair, they say, that the wealthiest contribute by at least paying what they were paying before the Bush tax cuts.

While some say Congress won’t raise taxes in an election year, the reality is allowing the Bush tax cuts to expire would help reduce the federal deficit. The nonpartisan Congressional Budget Office estimated the federal government would have $2 trillion less in its coffers over 10 years by allowing existing Bush tax rates to remain in effect.

Some top U.S. leaders are now saying the tax cuts to the middle-class can’t go on indefinitely.

House Majority Leader Rep. Steny Hoyer (D-Md.) recently told The Washington Post that the country needs to have a “serious discussion” about the middle-class paying more taxes. But for now he expects Congress to give most families a reprieve in 2011.

Here’s a look at how you could be affected if the Bush tax cuts expire in 2011:

Taxes jump on capital gains.

Capital gains will go up. Lower income tax filers who now aren’t paying long-term capital gains after holding stocks for at least a year are scheduled to pay 10 percent of their profits in 2011. It will go up to 20 percent for all other tax filers. Short-term capital gains will also increase according to a filer’s tax bracket. For example, a family who would be in the 28 percent bracket would pay that instead of the current 25 percent.

Return of the Hated Marriage Penalty Tax.

Many upper middle class married couples would no longer be able to count on the end to the so-called marriage penalty tax. The Bush tax cuts had equalized tax rates so most single and married couples paid the same percentage. For example, a single filer paid 10 percent on up to $8,375 of taxable income and married couples handed over a tenth of income up to $16,700. But if the Bush tax cuts end, that equalizing tax rate goes away as couples make more money .

Kids get more expensive.

Families’ child credits would be cut in half. Families earning $110,000 or less would only enjoy a tax credit of $500 per child instead of the current $1,000. So a family with two children would pay $1,000 more in federal income taxes per year.

Even the poorest might pay.

The bottom 10 percent tax rate will be eliminated if the Bush tax cuts expire. That means after deductions, the lowest tax rate for single filers in 2011 will go up to 15 percent for those earning less than $8,500 or up to $425 more for a single person. For married couples making $17,000 a year the extra taxes could be $850.

One tax rate stays the same.

The 15 percent tax rate, however, would remain the same for single filers earning up to $34,550; for couples the maximum income would be $69,100.

The middle class would pay more.

The 25 percent tax bracket for middle-class filers would jump to 28 percent for those single people earning less than $83,700 or $139,500 for married couples.

The upper middle class really pays.

The rate would go up to 31 percent for single filers making up to $174,650 or $212,600 for couples if the Bush tax rates expire.

The wealthiest are hit the hardest.

Both single filers and couples making up to $379,650 will see their tax rate jump from 33 to 36 percent. Those who make more than $379,650 will see their rate jump to 39.6 percent. President Obama has long favored the higher rate, arguing the wealthiest should help the less fortunate. But Republicans say the higher tax will hurt the economy.

Money Talks News also has other coverage on other possible tax changes:

Owe Back Taxes: 9 Tips to Help
On the Horizon – A Tidal Wave of Tax Forms

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  • angelmom1

    And this is bad how, the upper class has enjoyed tax cuts for as long as I remember it's time they paid their fair share. We are on a fixed income, Social Security, and we didn't get a cost of living raise this year and are taxes went up last year. While the rich ride around getting all the tax cuts and benefits, it's time they paid to be Americans, like the rest of us pay. Capital gains should be taxed as income to be fair, it's used as income so should be taxed. The only one with all the gravy for the last 11 years have been living the high life and don't care if this country goes to the dogs, they'll move to their homes in the Bahamas instead.

  • Peter

    I really don't understand all this class envy – where because you're having hard times, others – the rich – should be punished and force to pay more.. The rich already pay a majority of the taxes,and the corporate tax rates here in the U.S. are already among the highest in the world. I believe it is up to 47% of people don't even pay taxes at all!

    Also, it doesn't make sense that just because someone has achieved and has become wealthy – and can afford to pay taxes – doesn't mean that they should be forced to pay more.

    if the Bush tax cuts aren't renewed for everyone – everyone will be hurt – i guarantee it. Taxes get raised on the wealthy – it will trickle down to the middle class and poor via fewer jobs and benefits..

  • Anonymous

    hopefully, the congress will choose correctly for the people. Unfortunately, for the last forty years, the American middle class has been voting against its own interests, and electing many representatives which stood only for enrichment of the wealthy and corporate profits. In 1948, the tax rate of some of the wealthiest was around 90%. They still lived very well, and fared quite well in business development, which in turn led to a prosperous middle class. Workers ultimately owned their own homes, sent their children to college, and had no problem paying for health care. The infrastructure was built, Eisenhowers interstate system. Business generally did better, as did the workers for the business. But around 1970, ideas began to creep into the national government to foment the short term gains for corporations, and by 1980, total deregulation programs were in full swing. Where Reagan left off, economics advisors like Larry Sommers advised for Nafta and other trade agreements that led to outsourcing of American Corporations. Some liked to state that this was because of lower income taxes in other countries, however with loopholes in the tax structure, corporations payed very little anyway. Now, again, middle classmen are listening to the lies of those who stand for the very wealthy who say that phasing out of Bush tax cuts for the rich will hurt small business. Now we find that their definition of small business has nothing to do with the size of the business, but the number of owners in Scorps…pass thru corporations…less than three percent of the actually small businesses will be affected. The problem is that the cuts for the lower incomes must be maintained at current levels. They have already been cut by the President, but not by enough to compensate.

    Anyway, this country has experienced better economic times following increases in the tax rate for the rich. The two lowest points in the last 90 years was in 1928 and in 2005, immediately before the two worst economic downturns in modern history.

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