Sunday, August 22, 2010

Don't panic over 2011 tax hikes

Have you received the tax hike email that has been making the rounds? My in-box both at work and at home has been flooded with it. It is a good example of the type of propaganda I am trying to expose in my “Getting a Clue series” where I attempt to keep others from being manipulated by politicians, the media and marketing scams. I am providing the email in its entirety below, so you can read what I’m talking about.*

My friend and colleague Sue, who is a tax professional, also received the email and sent a cautionary rebuttal to all of the recipients. She feels there is value in reading it, but encourages us to look further into things. She says,
“Although some of the issues discussed are fact already, the vast majority are misinterpretations of proposals being made within Congress (and not yet law) and exaggerations coupled with only half-truths.”
The purpose of the email is to get our attention so we vote accordingly in the elections in November. After reading the email in its entirety, I don’t have the energy to dissect it line by line. All I can say is, “Don’t Panic.” Or as Sue said:
Wait until the bozos in Washington get their act together and decide what exactly is going to be our fate for 2011, because from all indications, they have decided practically nothing at this time.
“There is no terror in the bang, only in the anticipation of it.”
- Alfred Hitchcock

One of the emails I received began with:

Starting in 2011… yes tax hikes starting when:
- unemployment is still 10%
- very low GDP growth
- interest rates at 0 (feds out of bullets)
- real estate still down
- market still down
Great time to raise taxes??? I think not... and don’t tell me you don’t have time to read this. =0)

-Here is the email:
In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:
First Wave:
Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.

These will all expire on January 1, 2011:
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.

Second Wave:
There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011.
They include:
The “Medicine Cabinet Tax”
Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax”
This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States , and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can not be used to pay for this type of special needs education.

The HSA Withdrawal Tax Hike.
This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave:
The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.

The major items include:
The AMT will ensnare over 28 million families, up from 4 million last year.
According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear.
Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses.
There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced.
The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed.
Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.

PDF Version Read more:

Now your insurance is INCOME on your W2's......
One of the surprises we'll find come next year, is what follows - - a little "surprise" that 99% of us had no idea was included in the "new and improved" healthcare legislation . . . the dupes, er, dopes, who backed this administration will be astonished!

Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that's a private concern or governmental body of some sort. If you're retired? So what; your gross will go up by the amount of insurance you get. You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That's what you'll pay next year. For many, it also puts you into a new higher bracket so it's even worse.

This is how the government is going to buy insurance for the15% that don't have insurance and it's only part of the tax increases. Not believing this??? Here is a research of the summaries.....

On page 25 of 29: TITLE IX REVENUE

PROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec. 9001, as modified by sec. 10901) Sec.9002 "requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employees gross income."

Joan Pryde is the senior tax editor for the Kiplinger letters.

Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what is above.

Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November.


  1. Ugh. I hate propaganda. Especially mass emails that only contain some elements of truth if that.

    It's called the Estate tax, not the Death tax. Maybe we should call it the "Tax the estates of the dead who won't be enjoying it anyway and then maybe their kids won't turn into Paris Hilton" tax. Also, do make sure your rich relatives drop dead this year since last year there was an estate tax. There was supposed to be one this year but sometimes sunset legislation just sunsets without being changed like people think it is going to be.

    Kudos to your accountant friend.

  2. Some of it is out and out lies.

    Nicole pointed out some of the fallacy out there about the Estate Tax, but it starts at $5 Million, not $1 million. I personally think that folks who inherit $5M can afford to kick in some more to help the government.

    The increase from 30-35% is for the top 2% of earners. I personally don't know any of them, but they can afford to kick in a bit, too. (And I believe that it means that we will be returning to the SAME rates that we paid when Ronald Reagan was president. I'm making a lot more now, aren't you?)

    And, your health insurance is only taxable if it EXCEEDS $25,000 a year. That's a plan for which one's employer pays more than $2,000 a MONTH. Huh? only folks at the very top and some union members get that. I can't worry about them either.

    That's three out and out lies that I spotted and I'm just a person who ready the papers occasionally. Makes me question the truth in all the rest.

    Keep exposing the propaganda.

  3. Anonymous6:22 PM

    We would be returning to the same rates under Clinton not Reagan. The highest tax bracket under Reagan was 50% --for those making over 200K. Under Clinton the highest rate was 39 which applies to those couples making 250K a year or for singles making 200K a year.