by Susan Brinkmann, OCDS
Staff Journalist

A nation non-profit lobbying organization is warning the public that in just six months, the largest tax hikes in history will come in three “waves” that will impact American families and small businesses.

The notice, posted on the website of Americans for Tax Reform (ATR), a watchdog group founded in 1985 at the request of President Ronald Reagan, is informing the public that the first wave of tax hikes will come on January 1, 2011 when the 2001 and 2003 tax cuts for investors, small business owners and families will be allowed to expire.

As the ATR explains, this will cause personal income tax rates to rise at that time. 

“The top income tax rate will rise 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.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.”

Married couples and families will also take a hit beginning in January when 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 $1000 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 also be cut.

The Death Tax is another hike that will be imposed in January. “For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million,” The ATR explains. “A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.”

Savers and investors will see the capital gains tax rise from 15 percent 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.

But that’s not all. ObamaCare will usher in a second wave of twenty new or higher taxes, several of which will take effect in January, 2011.

These include the “medicine cabinet tax” which will no longer allow Americans to use pre-tax dollars (such as health savings accounts or flexible spending accounts) to purchase non-prescription, over-the-counter medicines (with the exception of insulin).

Also included in this second wave will be a new cap placed on flexible spending accounts (FSA) of $2500, which will have a devastating impact on parents of special needs children. “There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education,” the ATR reports. This is the first time that a spending cap has been imposed on FSAs.

Right behind this second wave of tax hikes will be a third wave known as the Alternative Minimum Tax (AMT) and Employer Tax Hikes

The AMT, which was created in 1969 to ensnare a handful of taxpayers, will now be expanded from applying to four million families to 28.5 million families.  “These families will have to calculate their tax burdens twice, and pay taxes at the higher level,” the ATR explains.

Small business will also be sorely impacted by a change in expensing. “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.  In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses in 2011.  “There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the ‘research and experimentation tax credit,’ but there are many, many others, the ATR reports, and says the combination of high marginal tax rates with the loss of so much tax relief will result in even more lost jobs.

For more information about the coming tax hikes, visit Americans for Tax Reform

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