If you're planning on dying anytime soon, tax advisers say it would be best to do it before Jan. 1.
The so-called "death tax" returns with a vengeance next year, bringing a 55 percent top tax rate on estates valued at more than $1 million.That compares to the current rate of 0 percent on estates up to $3.5 million.
Such news might equal a near-death experience for some taxpayers. But there's more ... much more. In addition to reviving the death tax, the federal government is making these changes for 2011:
- Personal income tax rates will rise. The top income tax rate will jump 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.
- 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 $1,000 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.
- 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.
These higher rates and reduced deductions are among dozens of alterations that Americans for Tax Reform calls "the biggest tax hikes in U.S. history." The anti-tax group did not offer an aggregate dollar amount.
While Democratic lawmakers and the Obama administration say more tax revenues are needed to balance the books, supply-side economists and conservative thinkers say the collective impact amounts to a job killer that will prolong or worsen the nation's economic recovery.
"The federal governments untimely money grab will weaken the private economy in the midst of a recession. Small businesses, which historically have generated most of the new jobs in Americas private sector, are especially vulnerable -- not only to the higher taxes, but also to the costs associated with an approaching blizzard of additional paperwork," said Robert Sanchez, policy director for the Tallahassee-based James Madison Institute.
Florida TaxWatch president Dominic Calabro said the stakes are as high for Florida as any state in the nation.
"As John Kennedy said, 'When the country gets a cold, Florida gets pneumonia,'" Calabro related.
Sanchez agreed, saying, "Florida, with its large number of retirees who rely on savings, investments, and the future sustainability of Social Security and Medicare, is especially vulnerable to these changes, which could turn a recession into something far more serious."
At least one of Florida's U.S. Senate candidates vows to stop the tax-and-spend train at the Capitol.
My promise to Floridians is that I will not support any tax increases in the U.S. Senate," said Republican Marco Rubio, who signed the ATR's "No Tax Pledge" last year.
Senate hopefuls -- independent Gov. Charlie Crist and Democrats Jeff Greene and Rep. Kendrick Meek -- did not respond to inquiries from Sunshine State News.
Meantime, the U.S. debt continues to set records. Some $1.4 trillion is expected to be added this year, pushing the total past $14 trillion -- roughly the nation's annual economic output.
"The fact is, no one's trying to cut spending," Calabro said. "(Spending) is exactly the wrong approach. You can't spend your way out of this."
Sanchez noted,"The recent July 4 celebration was a timely reminder that Americas quest for independence essentially began as a tax revolt. Now the insatiable appetite of government at all levels -- federal, state, and local -- is threatening to deprive our nations most productive citizens of an inordinate share of the fruits of their labor."
Florida economists met Monday to discuss their estimates for the national economy, and their outlook was generally bleak.
"The picture looks grim for housing (a key building block in Florida's economy), and the deficit has been worsened by bail-outs, spending and slower growth," said Clyde Diao of Gov. Charlie Crist's Office of Policy and Budget.
Tim Campbell, of the Florida Office of Economic and Demographic Research, opined that "clogged credit markets" constitute the biggest stumbling block to economic recovery.
Without fully addressing credit issues, Democrats in Washington persist in the Keynesian belief that more government spending -- funded through higher taxes -- will right the ship.
But as federal stimulus programs and Census employment phase out, ATR cites a "second and third wave" of higher taxes and lower deductions set to roll in Jan. 1:
- Small business expensing will be slashed and 50 percent expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or depreciate) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. Come January, all of it will have to be depreciated.
- Taxes will be raised on all types of businesses. Scores of tax hikes on business will take effect and several tax breaks, including the research and experimentation tax credit," will end.
- Alternative Minimum Tax expands. According to the left-leaning Tax Policy Center, Congress failure to index the AMT will lead to an explosion of AMT taxpaying families -- rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level.
- Tax Benefits for education and teaching reduced. The deduction for tuition and fees will not be available and credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed.The student loan interest deduction will be disallowed for hundreds of thousands of families.
- Charitable contributions from IRAs no longer allowed. Under current law, retired persons withIRAs can contribute up to $100,000 per year directly to a charity from their IRAs.This contribution also counts toward an annual required minimum distribution. This ability will no longer be there.
- The medicine cabinet tax." Under the new national health-care law, Americans will no longer be able to use health savings accounts, flexible spending accounts, or health reimbursement pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). The tax on non-medical early HSA withdrawals doubles to 20 percent.
U.S. Rep. Bill Posey, R-Rockledge, said, "If Congress doesn't act to extend or make permanent the 2001 and 2003 tax cuts, job growth could be further impeded."
Noting just one change -- the halving of the child tax credit -- Posey, a member of the House Financial Services Committee, said, The first bill I filed was a bipartisan measure to make the $1,000 per child tax credit permanent and index it for inflation. Over the years, inflation has eroded $200 or so from the value of the credit."
Now that Congress and the administration are heading in the opposition direction -- ramping up taxes and downsizing credits -- even some high-level Democrats are balking.
Erskine Bowles, co-chairman of President Obama's debt and deficit commission, called current budgetary trends a cancer "that will destroy the country from within.
We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out," Bowles, chief of staff in the Clinton administration, said Sunday.
In Florida, Democratic gubernatorial candidate Alex Sink swung to the right of Republicans Monday by proposing a series of tax breaks for individuals and companies affected by the Gulf oil spill.
Among her ideas for the upcoming special legislative session: property tax rebates for business and residential property owners whose property values have fallen because of the BP disaster, and temporary waivers of bed taxes, to "help the tourism industry recover and rebound."
Calabro said the key to recovery is stimulating the private sector -- not growing the public sector.
"Business needs to know what the rules are -- and that their hard work will yield profits that the government will not pilfer further."
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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 801-5341.
