THE NEW YEAR BRINGS TAX CHAOS
January 11, 2010
Happy New Year. Your tax bill just went way up. When the clock hit midnight on Jan. 1, some 70 new taxes on the middle class and small businesses went into effect, thanks to Congress's failure to prevent the expiration of popular and economically vital tax breaks on time, says Stephen Moore, a senior economics writer for the Wall Street Journal.
- Some 25 million middle class Americans are now slated to get hit with the alternative minimum tax (AMT) this year; the tax that was originally supposed to only hit the richest 100 Americans.
- This year, the alternative minimum tax will gather $63 billion from American families with an income of as little as $75,000, according to the Senate Finance Committee.
- The AMT may now hit tax filers who are school teachers, construction workers and bus drivers; call them the new rich.
The nation's employers are none too happy either with Congress's failure to extend these tax cuts before the New Year:
- The research tax credit, which businesses depend on for new innovation and R&D, has been suspended. This will raise R&D costs by more than $7 billion in 2010.
- The 50 percent write-off for small businesses for capital purchases -- such as expanding their facilities, purchasing new equipment or machinery, or building a new plant -- has vanished.
- Without those tax incentives, small businesses are likely to put any plans to expand their operations on hold. That means less jobs and fewer pay raises.
- A study by the National Center for Policy Analysis found that about 90 percent of the benefits from capital investment goes to workers in the form of higher wages due to increased productivity.
But the biggest debacle is the estate tax, says Moore:
- On Jan. 1 it fell to zero for the year, and then in 2011 it goes back up to 55 percent.
- Estate tax attorneys are full of stories of wealthy heirs with living wills that ask their dependents to take account of the estate tax when determining when to pull the plug on the life support system.
- Don't be surprised if death rates of wealthy Americans rises substantially this year.
Source: Stephen Moore, "The New Year Brings Tax Chaos; At least 2010 is a good year to die," Wall Street Journal, January 8, 2010.
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