NCPA - National Center for Policy Analysis


January 26, 2010

Weather-wise it has been a very cold January, and politically the Scott Brown Senate victory has chilled Washington Democrats even further.  But if the Democratic economic policies continue nevertheless, this year will be nothing like the bitter economic January we will be living in a year from now, says Pete du Pont, Chairman of the National Center for Policy Analysis and a former Governor of Delaware. 

Government spending has already hugely increased, and so has the size and scope of government, but next year there will also be substantial tax increases for a great many Americans.  The first reason will be the expiration of the Bush tax cuts, explains du Pont: 

  • The top personal income tax rate will rise next Jan. 1 to 39.6 percent from 35 percent, a hike of nearly one-eighth.
  • The dividend tax rate will rise to 39.6 percent, more than 2½ times the current 15 percent.
  • And the capital gains tax rate will rise by a third, to 20 percent from 15 percent.
  • If the House health care bill had passed, all three of these rates would have risen to 45 percent. 

The estate tax, which fell to zero this year under the Bush tax cuts, will return in 2011 -- or sooner, if Congress acts to restore it.  Another likely tax increase will be on the income of private equity and hedge-fund managers, from the capital gains rate of 15 percent to the new higher income tax rates.  It has already been passed by the House and is supported by the Obama administration, as is an additional 10-year, $90 billion tax on banks aimed at "rolling back bonuses for top earners."  It would affect some 50 banks, insurance companies, and large broker-dealers. 

Meanwhile a number of last year's tax deductions have disappeared due to the failure of Congress to extend them into this year, says du Pont: 

  • The tax deduction for state and local sales taxes is one.
  • The deduction for college tuition and fees is another.
  • The 50 percent write-off for small businesses for capital purchases--equipment, machinery or building a new plant--has disappeared as well, which will have a negative effect upon the construction of new business operation facilities. 

Source: Pete du Pont, "An Economic Time Bomb," Online Journal, January 26, 2010. 

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