Today the Senate will vote on extending the Bush tax cuts. The Democrats will present a cherry picking bill that would let the cuts on the so-called wealthy expire. They do this is spite of the fact that Obama, in a rare moment of truth, said that the last thing we need to do in a recession is to raise taxes. The Democrats know that they will not get 60 votes and it will fail. This is what is called a safe vote, the Democrats can vote on it for their constituents knowing that it will fail. It is a very cynical part of daily politics. Mitch McConnell, Senate Minority Leader, is making it interesting because he may allow a vote to take place with a simple majority rather than requiring 60 votes to pass. This will put some Democrat Senators in tight races in a position of raising taxes on farmers and small businesses. The Republicans will also present a bill to extend most or all of the cuts and will fail as well.
This is ridiculous. These cuts go back to 2001. They have been used as a political weapon by both parties for years. The vast majority of both Democrats and Republicans know that letting the cuts on the “upper income levels” expire will have a devastating effect on the economy. Even if they are extended businesses will not have the confidence that they will stick to really start investing their capital. These cuts should be made permanent until a fundamental re-write of the tax code is made. In the long run we need a much simpler tax system with permanently low rates to sustain a good environment for a strong economy.
Below, see a list of the most well-known tax increases that could occur on January 1, 2013. These are several others that will expire as well.
- The 10% tax bracket will expire, reverting to 15%
- The 25% tax rate would rise to 28%
- The 28% rate would rise to 31%
- The 33% rate would rise to 36%
- The 35% rate would rise to 39.6%
Marriage Penalty Provisions:
- The standard deduction for married couples will fall, no longer double what it is for single filers;
- The ceiling of the 15% bracket for married couples will fall; no longer double what it is for single filers
- The child tax credit will fall from $1,000 to $500
- The tax rate on long-term capital gains earned by middle and upper-income people would rise from 15% to 20%
- The tax rate on qualified dividends earned by middle and upper-income people would rise from 15% to ordinary wage tax rates
- The PEP (personal exemptions phase-outs) and Pease provisions (overall limitation on itemized deductions) would be restored, rescinding from high-income people the value of some exemptions and deductions.
- Dependent care credit — increase of dollar limit on creditable expenses from $2,400 to $3,000 ($4,800 to $6,000 for two or more children), increase of applicable credit percentage from 30 to 35 percent, increase of beginning point of phase-out range from $10,000 to $15,000.
- Education IRAs (Coverdell education savings accounts) — increase of maximum annual contribution from $500 to $2,000, expansion of definition of qualified education expenses, increase in the size of the phase-out range for married filers to double that of unmarried filers, provision of special needs beneficiary rules, contributions by corporations and other entities, and contributions until April 15th, permitted.