Many voters are looking forward to 2011, hoping a new Congress will put the country back on the right track. But unless something’s done soon, the new year will also come with a raft of tax hikes — including a return of the death tax — that will be real killers.Through the end of this year, the federal estate tax rate is zero — thanks to the package of broad-based tax cuts that President Bush pushed through to get the economy going earlier in the decade.
Resurrection of the death tax, however, isn’t the only tax problem that will be ushered in Jan. 1. Many other cuts from the Bush administration are set to disappear and a new set of taxes will materialize. And it’s not just the rich who will pay.
The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket — 25% — will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%.
But the damage doesn’t stop there.
The marriage penalty also makes a comeback, and the capital gains tax will jump 33% — to 20% from 15%. The tax on dividends will go all the way from 15% to 39.6% — a 164% increase.
Both the cap-gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8% Medicare levy for individuals making more than $200,000 a year and joint filers making more than $250,000. Other tax hikes include: halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers.
Letting the Bush cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020.
But even more tax headaches lie ahead. This “second wave” of hikes, as Americans for Tax Reform puts it, are designed to pay for ObamaCare and include:
The Medicine Cabinet Tax. Americans, says ATR, “will no longer be able to use health savings account, flexible spending account, or health reimbursement pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin).”
The HSA Withdrawal Tax Hike. “This provision of ObamaCare,” according to ATR, “increases the additional tax on nonmedical early withdrawals from an HSA from 10% to 20%, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10%.”
Brand Name Drug Tax. Makers and importers of brand-name drugs will be liable for a tax of $2.5 billion in 2011. The tax goes to $3 billion a year from 2012 to 2016, then $3.5 billion in 2017 and $4.2 billion in 2018. Beginning in 2019 it falls to $2.8 billion and stays there. And who pays the new drug tax? Patients, in the form of higher prices.
Economic Substance Doctrine. ATR reports that “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.’”
Sen. Kent Conrad (D-N.D.), in an interview with Dow Jones Newswires, asserted that Democrats should cancel plans the largest tax hike in history at the end of the year. At this point, income tax rates are scheduled to increase for all Americans, dividend tax rates are scheduled to increase to the tax levels of general income (a move that will devastate the nation’s retirees), capital gains tax rates are set to rise, and the death tax will return at its absurd level of 55 percent (which breaks up family businesses and costs American jobs).
Conrad cited chronic unemployment and turmoil in European debt markets as reasons to remain circumspect about the tax increases. “As a general rule, you don’t want to be cutting spending or raising taxes in the midst of a downturn,” Conrad said. “At the same time, we know that very soon we’ve got to pivot and focus on the deficit,” he said. “But it probably is too soon to cut spending or raise taxes.”
However, in understanding the tax tsunami, two images, as related to health care may say it all:
The Center for Health Transformation recently released two charts detailing the effects of Obamacare. The first of the charts depicts the 158 new agencies, bureaus, commissions, panels, and other organizations created by the legislation in an organizational chart, and the second of the charts maps out the various implantation deadlines required by the legislation.
As former Speaker of the House Newt Gingrich asserts, “This diagram shows the new law is a massive expansion of government and does little to focus on improving individual health,” Gingrich said. “This is a blueprint for more regulation and more headaches for every American – especially those who rely on the government for health insurance coverage.”