The bottom line is that there simply aren't enough rich to pay for everything, so fiscal irresponsibility will force higher taxes on everyone within a few years!
from Fox Business:
In case you’ve been vacationing on Martha’s Vineyard--or the moon--allow me to bring you up to speed: As things stand today, all U.S. taxpayers are facing a bigger federal tax bill next year.
Notice I did not say “all Americans.” That’s because roughly half of all tax entities (married couples, single individuals, households headed by one adult) do not pay a cent in federal income tax, according to Gerald Prante, chief economist at the non-partisan Tax Foundation.
That is stunning: 50% of potential taxpayers get off scot-free.
However, since whether or not you pay income tax has no impact on your ability to vote, these individuals can elect politicians who approve spending programs that they benefit from, but have no stake in paying for.
For the 50% of us who do pay federal income tax, Dec. 31 is a critical date: When the clock strikes midnight, the Bush tax cuts expire and we return to the tax rates in place prior to 2001.
Here’s what tax rates have been since 2006 when the reductions were fully phased in.
| 2006 through 2010 |
| 10% |
| 15% |
| 25% |
| 28% |
| 31% |
| 35% |
“The idea that the Bush tax cuts only helped the rich is not correct," says Prante. In fact, by introducing the 10% tax bracket, the changes ushered in by the 2001 Tax Act(1) significantly helped low-income individuals because it cut by one third the amount of tax owed on the
first dollars earned (up to $17,050 this year for those filing married/joint).
The 2001 act also made the tax code more fair for married couples by eliminating a number of so-called “marriage penalties.” This includes increasing the standard deduction to twice the amount for single taxpayers and doubling the amount of income that falls into each of the three lowest brackets.
The 2001 tax changes also gradually restored itemized deductions for upper-income taxpayers.
Here’s what federal income tax rates will revert back to unless new legislation is enacted:
| 2006 through 2010 | If Bush Tax Cuts Expire |
| 10% | |
| 15% | 15% |
| 25% | 28% |
| 28% | 31% |
| 31% | 36% |
| 35% | 39.6% |
| 2006 through 2010 | If Bush Tax Cuts Expire | Obama/Democrats Proposal |
| 10% | 10% | |
| 15% | 15% | 15% |
| 25% | 28% | 25% |
| 28% | 31% | 28% |
| 31% | 36% | 36% |
| 35% | 39.6% | 39.6% |
And, according to Prante, you’re probably correct. “Most people are not going to face a tax increase under the Democrats’ plan.”(4) However, he says, the Democrats’ message of, “we can solve all our nation’s problems by taxing the rich and it won’t affect me [personally]” is misleading.
He ominously warns that, even if this is the case today, “It won’t be true for long.” With half of all taxpayers paying zero federal income tax and the top 1% of households contributing 40% of the total amount collected (as of 2007), you soon face the proverbial dilemma of how to squeeze more blood from a turnip. The fact is: This country- make that Congress-has more of a spending problem than a revenue problem.
According to Prante, raising income tax rates is just a short-term fix.
“People are underestimating how hard they’re going to get hit within five years. That’s when tough decisions have to be made to address the long-term fiscal imbalances.” At that point, he predicts “everybody will have to feel some pain in the form of higher taxes or big cuts to big budget items like Medicare and Social Security and military spending.”
And if Washington doesn’t have the guts to make some hard decisions?
“The U.S. will go off the fiscal cliff.”
1. The Economic Growth & Tax Relief Reconciliation Act of 2001.
2. So far, Republicans on Capital Hill have not submitted a formal proposal. Their main position is that raising taxes during a recession is dumb economic policy; they want the Bush tax cuts made permanent.
3. According to the Tax Foundation, under the Obama proposal, the 28% tax bracket would cover single taxpayers with income of $83,900-194,150 and married taxpayers with income of $139,850-235,550.
4. See how your federal tax bill will be affected under all three scenarios by visiting the Tax Foundation’s calculator at http://www.mytaxburden.org/
Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
