Tuesday, March 31, 2015

How your US taxes will go up next year

"The bulk of the tax hike will hit individuals, especially lower-income taxpayers"

How your US taxes will go up next year

The Bush tax cuts are due to expire this year. Buried in the Congressional Budget Office's "Budget and Economic Outlook: Fiscal Years 2010 to 2020” report, released this week, is a guide to (a) how much your tax rates will go up if nothing else changes, (b) how this will help plug the federal deficit. It's deep, but economist Ed Yardeni summarizes in his report to clients today. (See the full CBO report here).

Writes Yardeni, "The CBO estimates the impact of the expiration of the Bush tax cuts on federal revenues at the end of this year... The bulk of the tax hike will hit individuals, especially lower-income taxpayers. The scheduled expiration of lower tax rates on individual income, initially enacted in 2001, will lead to the largest increase in revenues...

"For working individuals, the 10% tax rate bracket will revert to 15% in 2011. The 25% goes up to 28%, 28% goes up to 31%, the 33% goes up to 36%, and the 35% goes up to 39.6%.

"For investors the top tax rates of 15% on long-term capital gains realizations and dividends will return to the pre-2003 rates of 20% for capital gains and 39.6% for dividends.

"In addition, the temporary [Alternative Minimum Tax patch], enacted in 2001 to hold down the number of taxpayers affected and then extended annually, expired at the end of 2009. The largest revenue-increasing effect of that change will be seen in 2011...

"The CBO is expecting that real GDP growth will slow from 2.2% this year to 1.9% next year. However, the tax hikes are not specifically blamed for this modest slowdown...

"In 2010, under an assumption that no legislative changes occur, CBO estimates that federal spending will total $3.5 trillion and revenues will total $2.2 trillion. The resulting deficit of about $1.3 trillion would be just $65 billion less than last year’s shortfall and more than three times the size of the deficit recorded in 2008."
 

Joseph N. DiStefano
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Joseph N. DiStefano
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