Barack Obama: Well what we’ve gotten done I’m enormously proud of and it’s making a difference, and in some cases we’ve had a chance to actually work with the Republicans. When they show themselves willing to actually engage to try and get stuff done, then we can do a lot of good for the country.
This comes from the same guy who just tripled the US deficit in a year.
Federal non-defense spending soared under Obama.
Why Your Tax Bill Might Surge Next Year
In a recent tax planning meeting with one of our clients, we shocked them with what their income tax future looked like for 2013 if — on the off-chance — Congress continues to do nothing to provide a long-term permanent set of tax laws. They had no idea what tax breaks were expiring this year and next year, and how much it would cost them personally in extra income tax. But they aren’t alone, many Americans and even tax professionals aren’t aware that their tax bill could rise dramatically next year.
These clients are your average American family and their situation is a good example of the law changes that will affect all of us. Here’s their tax situation with a table summarizing the expiring tax laws that are scheduled to occur in 2011 and 2012.
Meet the Smiths: 26-year-olds Bill and Joan have been married for five years and have two young children. Bill earns about $65,000 a year in sales and Joan has gone back to work and earns about $35,000 annually. Bill owes quite a bit on his college student loans and will pay about $3,000 in interest on them in 2013. With Joan working again, they are paying $3,000 for year-round child care. Joan inherited some AT&T stock from her grandmother, which pays her $1,000 in dividends every year. Finally, counting home mortgage interest, they have about $20,000 in itemized deductions.
The first big change affecting the Smiths will be a combined increase in income tax rates, and a tightening of tax brackets as a result of the expiration of the Bush tax cuts. We estimate this will cost them $960 in 2013.
Bill will lose the complete deduction of his student loan interest in 2013, costing about $840. The pair’s allowable deduction for child care will drop to $2,400 from $3,000, and they will also see their credit for children drop in half, costing another $1,000.
The marriage tax penalty will come roaring back to hit the Smiths in 2013, costing an estimated $500. The tax on their dividend income will go increase to $280 from $150, adding another $130. Finally, although we did not calculate the effect, without Congressional action to once again “fix” the alternative minimum tax, the Smiths could owe this ugly tax as well! Luckily for the Smiths — but not for many Americans — other major changes for 2013, which do not personally affect them, include a phase out of itemized deductions and personal exemptions if their income starts to climb.
In summary, because of tax laws expiring this year and next, we estimate that the Smiths will owe $3,598 more in income tax in 2013 than in 2011 with no change in their income.
Major Individual Income Tax Benefits Expiring 12/31/2011:
• Personal tax credits applied against income tax no longer apply
• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds
• $250 school teacher expense deduction ends
• Mortgage insurance premium deduction expires
• State and local sales tax deductions expire
• Tuition and related fees deduction end
• IRA to charity tax-free transfers stop
• 2% Social Security tax reduction ends
Major Individual Income Tax Benefits Expiring 12/31/2012:
• Marriage penalty equalization ends
• Dividends taxed at capital gains rates removed, taxed at regular rates now
• Capital gains low tax rates expires
• Removal of itemized deduction phase out for higher income Americans
• Removal of personal exemption phase out for higher income Americans
• Child care deduction limit of $3,000 reverts to $2,400
• Child credit reduces from $1,000 per child to $500 per child
• Low 10% tax bracket for low income Americans is eliminated
• Lower income tax rates and smaller brackets expires
• Refundable adoption credit and reduced deduction
• American Opportunity college education credit expires
• Major reduction in earned income credits and refunds
• Income tax exemption for debt forgiven on home foreclosures and repossessions
• Deduction for student loan interest ends
• Education IRA limit drops from $2,000 to $500
Bob Jennings is a CPA, EA and CFP and author of “Understanding Social Security & Medicare.”
The White House is billing its $3.7 trillion budget as a package of cuts that will reduce the deficit by $1.1 trillion over ten years.
But at closer inspection this budget is as much about tax hikes as cuts.
In fact, the budget contains as much as $1.5 trillion in hikes over ten years, according to the Americans For Tax Reform .
Here are the 15 taxes identified by ATR :
- Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike
- Raising the capital gains and dividends rate from 15% to 20%
- Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike
- Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phaseout of itemized deductions limits them even more. This is a $321 billion/ten year tax hike
- New bank taxes totaling $33 billion over ten years
- New international corporate tax hikes totaling $129 billion over ten years
- New life insurance company taxes totaling $14 billion over ten years
- Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years
- Increasing unemployment payroll taxes by $15 billion over ten years
- Taxing management capital gains in an investment partnership (“carried interest”) as ordinary income. This is a tax hike of $15 billion over ten years
- A giveaway to the trial lawyers—not letting companies deduct the cost of punitive damages from a lawsuit settlement. This is a tax hike of $300 million over ten years
- Increasing tax penal
- ties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion.