Are Higher Tax Rates Coming Soon?

[OtisMozzetti]

The U.S. government has a multi-trillion dollar budget deficit. Should higher tax rates become part of one's tax planning, and when might those higher rates go into effect?

It says, under "Expiring Tax Provisions", in TTB 1-8 that "tax rate reductions ...from the 39.6%,36%,31%,28%, and 15% rates in effect for tax year 2000, to the 35%, 33%,28%,25%,15%, and 10% (individuals only) rates that are currently in effect" will expire Dec. 31 of next year.

It also says, under "Expiring Tax Provisions", in TTB 1-6 that "capital gain and dividend maximum tax rates of 15%, 5%, and 0%" will expire also on Dec. 31 of next year.

On page TTB 1-9, there is a chart showing substantial increases in tax rates that are scheduled to become effective during 2011. There is further discussion of it on page TTB 6-8.

[Bees Knees]

If I remember correctly, Obama said he wants to let the Bush tax cuts expire, rather than directly raising taxes.

The increased tax rates mention in TTB are what he was refering to. If Congress passes no new laws, the rates will automatically go back to the 39.6% top rate that Clinton passed in 1993. This will all happen before the next Presidential election. So I would say, yes, we are going to see taxes increase once again.

[erchess]

Also Agreed

Taxes will go up for tax years beginning after 12/31/10 if nothing changes. If the conservative and moderate Democrats in the current Congress joined with the Republicans they could force extensions of the Bush cuts or even further cuts but the President would likely veto the legislation and I think the Senate would not be able to override There will of course be new Congressional elections in November of 2110 and if there is a sea change in public opinion the new Congress in 2010 might take retroactive action but in my opinion that seems unlikely right now. It does however illustrate the problem with tax planning. It's impossible without making some assumptions as to the long term behavior of the political class.

[Roberts]

Facts:

Medicare is broke in 7-8 years. That means the deficits will be tapped via the budget.
Social Security is broke about 10 years after that meaning more deficit spending.

opinion:

Considering our economy is expected to grow at 2.5-3% long term and our debt load is growing at 10% before these problems hit, it's an inevitability that tax rates are going up. It isn't just the taxes for the wealthy either. We'll all be biting into this disgusting sandwich.

In 2010 it is expected S&P will put US government debt on a credit lowering watch because it will hit (or be obviously on a crash course towards) 100% debt to GDP. When the UK hit that earlier this year, the S&P sighted it as cause to put THEIR credit on a downward watch. That's going to have significant repercussions on everyone. If you think that's going to just blow over without any problems, you are kidding yourself.

Obama has been hitting at tax havens to adjust their laws and the IRS has increased taxation periods for individuals who denounce their citizenship to avoid their tax obligations. The writing is on the wall people.

[taxxcpa]

No new taxes

Read my lips, no new taxes!

Sound familiar?

[joanmcq]

Remember...

Hey, these aren't NEW taxes, they are old taxes.

When the Bush administration first proposed all of the original tax cuts, credits, deductions, etc, the sunset dates were written in so that the deficit projections forward would not be as onerous as they really were. There was much written at the time (well mostly by accountants and buried in business pages and in trade journals & such) at the funny accounting that was being used, and that once in place, the cuts, credits & deductions would be very hard to actually let sunset because once a cut is in place, the sunset provision is reported as a tax increase. And who wants to be for a tax increase???
For reference, please see the CA vehicle license fee reduction in 2000 when we were awash in money & Gray Davis's attempt to enforce the automatic increase when the CA budget went to hell.

I for one am truly sick of funny accounting.