Company's 401(k) Plan.
01 September 2010
One of the powers the U.S. Constitution gives Congress exclusively is the power to collect tax in order to provide for the common defense and general welfare of the United States. Since day one, Congress has increased taxes during war and need, and decreased taxes when necessary. This ingenious, flexible power granted Congress has helped to keep our country and defense strong—albeit not without its critics and often we taxpayers are left wondering, "What is going on?" Presently, as taxpayers, we want to know what will happen with the expiration of the 2001 and 2003 tax relief legislation? The short explanation is we will go back to the governing rules of approximately ten years ago:
- Personal income tax rates will rise – 25% bracket would go to 28%; 28% bracket to 31%; 33% to 36%; and 35% to 39.6%
- The marriage tax penalty returns in full force
- Estates worth more than $1 million will be taxed at 55% and it could be retroactive to January 20101
- Child tax credit is cut from $1,000 to $500
- Capital gain rates return to 20% and dividends will be taxed at marginal rates
- And possibly the worst - Alternative Minimum Tax will affect tens of millions of Americans making as little as $33,705 for individuals and $45,000 for families, rising from 4 million families to 28.5 million.2
Regardless of personal opinions, in general the Democrats would extend the tax cuts for all but the top income brackets and the Senate Budget Committee has endorsed a similar proposal. Most Republicans would like the existing tax cuts to become permanent.
As far as the Estate Tax, let’s just say Planners, Attorneys and CPAs are all going to be busy after a solution to this quagmire is finally agreed upon. Any retroactive change to the Estate Tax can expect to be faced with years of litigation and many estates will be held in limbo.3
Congress needs to move on a bill (not written yet) and pass it before the end of the year to make any change a reality. Will we see progress before the November elections? I don’t know. But be prepared. I do know whatever solution Congress comes up with (assuming it takes some action); it most likely won’t be permanent---go back to paragraph one.
1”Uncertainty Swirls Around Estate Tax”, http://online.wsj.com/article, December 19, 2009
2Ellis, Ryan, “Six Months to Go Until The Largest Tax Hikes in History,” Americans for Tax Reform, July 1, 2010
3Gleckman, Howard, “Will Congress let the Bush tax cuts expires?” http://www.csmonitor.com/Money/Tax-Voc /2010/07/30