Sunday, July 04, 2010

Taxes are Going Up - No Surprise

"Just as I predicted." ~ my football coach when showing game films.

Before film review day, my football coach would watch and document every play for an upcoming opponent. Thus, he already knew every play we were going to see. He would enjoy "predicting" the next play before it was evident to us. Like my coach, I feel I can already see tax increases coming in our near future.

Teeing Up the Middle class in The Wall Street Journal reports that the Obama administration is no longer ruling out a tax increase for the middle class, i.e. those making under $250, 000 a year. “It is never a good idea to absolutely rule things out no matter what,” Mr. Summers said, when asked about President Obama's pre-election vow that those making under $250,000 "will not see their taxes increase by single dime." In fact, many experts are now admitting that it will be challenging to not tax the middle class. Here are some of the ways I expect taxes will affect the middle class:

  • Expiration of Bush tax cuts. At the end of 2010, many of the Bush tax cuts will expire, including 15% capital gains and dividend tax rates and increased child tax credits. Both of these tax breaks would increase taxes on the middle class, specifically since the child tax credit is usually only available in full to joint filers making less than $110,000.

    For the record, the Obama administration has stated that an expiration of a tax cut is not a tax increase.

  • Sales tax. States are considering increasing or enacting sales taxes on specific items, such as soft drinks and cigarettes. In addition, some municipalities are considering an increase in the local sales tax.

    Another option being considered is a national value added tax (VAT), which is essentially a national sales tax.

  • Stealth taxes. There are two types of stealth taxes: 1) Those enacted on business that are passed through to customers; and 2) Taxes that are categorized as something else. An example of the first is the Bank Tax on financial institutions. Although, this provision has been removed from the Wall Street Reform Bill, it is a good example of a tax that would have eventually been paid by the users. An example of the second is the penalty payment, paid to the IRS, for declining to enroll in mandatory health insurance.
  • Hopefully, I am wrong. However, based on our current economic situation, it seems taxes have no where to go but up.

    For more on New Beginnings, check back every Monday Sunday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

    1 comment:

    Roshawn @ Watson Inc said...

    I agree. The expiration of the Bush tax cuts certainly increases taxes on the Middle class. I think the majority of people who receive portfolio income do not make $250,000, yet their taxes are going up. It's quite sad honestly.

    The stealth taxes are another big concern. I don't want to lose my free checking, and that's what may happen with all of this regulation being passed; the consumer (mostly middle-class too just by sheer probablity) gets burned.