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Massive tax hikes are coming

Posted by Richard on July 6, 2010

Administration spokespeople and their shills in the MSM are starting to whine that businesses are to blame for the failure of a trillion dollars in stimulus spending to actually stimulate the economy. Businesses aren't expanding or hiring or ramping up production like they should, the argument goes. Well, the reason they aren't is because they're scared!

Given the current climate in Washington, business owners fear what new regulatory burdens will be imposed on them next. And they know that on January 1, they're going to get socked with the first wave of massive tax increases. Would you invest your money to expand your business and hire new people when you don't know what new barriers and hurdles you face, and you do know you're going to pay much higher taxes in the future? No, you wouldn't. You'd hunker down and adopt a defensive posture. Which is just what American businesses are doing.

Most small businesses (the backbone of the economy and the source of most employment) are taxed at the top personal income tax rates. And those, among other taxes, are set to go up significantly when the Bush tax cuts expire at the end of this year. Americans for Tax Reform has the gory details (emphasis in original): 

Personal income tax rates will rise.  The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  The lowest rate will rise from 10 to 15 percent.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  The full list of marginal rate hikes is below:

– The 10% bracket rises to an expanded 15%
– The 25% bracket rises to 28%
– The 28% bracket rises to 31%
– The 33% bracket rises to 36%
– The 35% bracket rises to 39.6%

Higher taxes on marriage and family.  The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care and adoption tax credits will be cut.

The return of the Death Tax.   This year, there is no death tax.  For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors.   The capital gains tax will rise from 15 percent this year to 20 percent in 2011.  The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.  These rates will rise another 3.8 percent in 2013.

And that's just the first of three waves of tax increases that we face next year. Go to ATR to see details of the other two waves, which may be even worse. 

If the President really wants to revive the economy, he should declare his support for extending the Bush tax cuts in their entirety. And he should propose a moratorium on major new business regulations, backed with a promise to veto any bill enacting such regulations. 

But I doubt that he'll do either of those things. Because I doubt that reviving the economy is really his goal.

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