All income taxpayers should be very concerned about the Democrat tax bomb that is scheduled to explode on January 1, 2011. If congress does nothing, listed below is the percentage increase that will take effect the first of next year.
Percent
Increase
Top Income Tax Rate 17
Capital Gains Rate 33
Top Dividend Rate 164
Estate Tax N/A
Lowest Income Rate 50
Before the “experts” in the reading audience explain all the errors in my computations let me explain these amounts. I am not listing the increase in percentage points but the actual percentage increase. Thus the proposed increase in capital gains rate from 15 percent to 20 percent is an increase of 5 percentage points but an actual increase in the tax of 33 percent.
The proposed increase in the estate tax is an entirely different picture. For the year 2010 the federal rate is zero. Starting in 2011 the rate for any sizable estate would be 55 percent.
If you need any proof of the absolute stupidity and fiscal irresponsibility just observe what happens when the Democrat leadership fails to act. So why do you suppose no action is taken? Simply a political maneuver. Prior to the November 2010 election they don’t want the label of tax increasers. Many of us believe there probably should be some tax on estates above a certain level. Each person has their own measuring stick and mine would be at about 50 million. This would exempt the estates of most small businesses and most farmers.
By playing the irresponsible delaying game our Democrat congressional leaders are allowing billions of estate tax proceeds to go uncollected. Consider the estate of George Steinbrenner, former owner of the New York Yankees, who died recently and left an estate in excess of one billion dollars. There are no doubt many of these people who have died so far in 2010 or will expire before the end of the year. This inaction by congress has a damaging effect on small and medium sized estates that probably more than offsets the break given to the heirs of giant fortunes.
To explain this let’s assume you inherited in 2009, 1,000 shares of Exxon worth $70,000 at the time of your father’s death. If his estate was only about 2 million dollars, there would be virtually no estate tax to pay unless the state you and your father resided in had a modest inheritance tax. The benefit you would have received would be a step-up in basis to the full $70,000. Thus if you sold it a year later for $75,000 you would pay a capital gain tax on only $5,000 in gain.
This would not be true if you inherited this money in 2010 under the same circumstance. In this scenario you would receive no step-up in basis and if your father purchased this Exxon stock 30 years ago for $12,000, you would pay capital gains tax on $63,000 if sold for $75,000.
The bottom line is that unlike the propaganda they put out the action or failure to act by our Democrat leaders usually hurts those on the lower end of the scale the most.
You will hear and have probably already heard the worn-out mantra that by doing nothing and letting the Bush tax cuts expire it is not really a tax increase but just letting the rates go back to the Clinton era. This simply insults the intelligence of anyone capable of any independent thinking.
Assume you rented a house for $800 a month and your landlord generously cut that rent to $650 a month and kept it there for four years. In the fifth year he increased that rent back to $800 a month. In the meantime times are tough for you economically and you can barely afford the $650 in rent. Do you think for a minute you would be appeased because after all it’s only an increase back to what the rent was five years ago?
Going back to the chart consider the many widows and others that are living only on dividend income. Under the existing IRS rules these taxpayers pay a maximum of 15 percent on these dividends. The equity in the lower rate is based upon the fact that this dividend has already been taxed by the corporation at around the 40 percent rate. In 2011 if nothing is changed that top rate will be increased 164 percent. How would you like to prepare your family budget with that increase?
I can hear the comments now. If this conservative writer is so concerned about the deficits and our gigantic 14 trillion federal debt, why doesn’t he welcome an increase in income tax rates? History gives the answer. If these horrendous rates are effective, under the spendthrift policies of Obama, Pelosi and Reid there will be no reduction of debt only more and more spending programs.
As President Reagan once indicated, if Democrats are in power they will always spend at an exorbitant rate; the only effective method is to decrease taxes in an attempt to starve the beast.
(Jerry Jackson of Heber Springs writes his “conservative viewpoint” column each Wednesday)
