I hate getting hit in the face, so when I see a punch coming my way I try to duck. An uppercut to the jaw is coming to most Americans next year so here is your chance to dart and weave. Not that you need more bad news, but the Obama Administration will have sweeping tax increases waiting for most Americans in 2011 and 2012. This is especially bad news for small business owners struggling to stay afloat. If your best friend is not a tax consultant you may want to begin to find one, because your net income for the next two years will be on the ropes taking body blows and jabs.
Personal income tax rates in 2011 will begin to 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.
This "Robin Hood Agenda" will rob Americans of much of their income tax deductions and distribute it to Obama funded health care programs, public infrastructure costs and a very expensive war overseas. If you feel that small business owners or families with children are feeling rich these days, you have another thing coming. This tax increase will drain the demographic, further decreasing consumer spending, thus extending the trend of bankruptcies and foreclosures. Worse than that it will extend US economic decline further into the future, decreasing jobs and business expansion. Hard to say what the impact will be to an already battered American, but imagine how Rocky Balboa looked after his prize fight with Apollo Creed after 15 rounds. "Yo, Adriane!!"