Over the last few months the legislators have been in a dead locked battle over the Bush tax cuts. The latest resolution allowed the cuts to remain intact but would come up for expiration again by the end of the year. This tax cut has divided our legislature down the aisle as Republicans want to keep the tax cuts while the Democrats want the tax cuts to expire.
Democrats have campaigned to the people that the tax cuts need to expire because it allows the rich to receive generous tax cuts that enable the wealthy in our country to pay fewer taxes than the rest of us. This has caused many people in our country to support the tax cut expiration. That is partially true, what they are not saying is that it will directly impact the middle class as well if it expires.
If this tax expires the middle class will end up paying almost two times more in taxes than before. Yes it will force the wealthy in this country to pay the same amount of taxes as the rest of us; but to let this tax expire just to force the rich to pay more will bankrupt this country.
Every American, if this tax expires, could see as much as 200 to 400 more dollars in their paycheck go to federal taxes. In a time where gas still sits on average at $3.58 a gallon and inflation on general items we need to live including food and housing and utility bills are at all time highs, that money could force a middle class family on a $50,000.00 combined income the inability to pay bills or eat. The direct impact could cause the family to fall into foreclosure on their homes, file for bankruptcy and destroy their good credit and their life.
In 2013 Obamacare will be implemented and enforced. For those middle class Americans that can’t afford insurance now on their income or will lose their insurance from their business because of the mandate these individuals will now pay a penalty which can go as high as $2000.00 per person per year. Now add that penalty on to the increased paycheck taxes and the middle class will now have no money to live on or invest.
In addition to the penalties Americans will be forced to pay in order for Obamacare to fund itself, there is 4% sales tax on all investments including real estate purchases. That particular sales tax will also be used to fund Obamacare. To put that amount into perspective, if you bought a home for $100,000.00, you would pay $4,000.00 in taxes for Obamacare.
There are other taxes that are worse than the everyday taxes mentioned above that the middle class will face. Those taxes that will once again be enforceable are the capital gains taxes and the death tax.
The capital gains tax will increase. Everyone pays capital gains taxes when they profit from long term investments like stocks, bonds, 401K’s, mutual funds, and any other long term. The tax is usually deferred until you close the account or pull from the investment early (if the account allows you to do so). Right now the percentage is minimal hardly impacting the investment; but if the tax cuts expire this number will rise significantly.
Since most of these long term investments are allocated for retirement; this particular tax impacts senior citizens the hardest. Imagine saving almost a million dollars over the years, you finally retire and these investments mature so you pull the money out to live. When that individual goes to pull the money out; they end up paying $39,000.00 (estimated) from their investment to pay the government. The exact amount the tax will increase has not yet been established, but it’s going to be significantly more than what we pay now.
Senior citizens who depend on this money during their limited income days to supplement their small social security checks will find it harder to live; especially if the cost of living continues to rise.
The other tax is the death tax. Currently when someone dies if their estate is worth five million dollars or more we are taxed 50% of the estate. Most middle class American’s don’t have to worry about this because most estates are not valued more than a few million at best; unless we have a rich in-law.
If the Bush tax cuts expire, the five million dollar cap will decrease to one million dollars which means we will be taxed on a million dollar estate. With home values at $350,000.00 or more mixed with assets (jewelry, furniture, cars, investments, etc) that million dollar cap is well within reach for most Americans. That tax most middle class American’s won’t be able to afford.
Another unpopular tax will resurface as well that will impact every American regardless of their income; that tax is the marriage tax. The marriage tax penalizes families who file jointly. Currently married couples fare better when filing jointly rather than individually, this tax penalizes those couples taking more money out of their tax return. Money that could be used to fix their home, buy a car, invest or save for their children’s college tutition.
The taxes don’t just stop at the general public. There will be increased small business taxes and taxes on corporate America. These taxes will prevent most Americans to open a small business; or if the business is established they may have to lay off workers and freeze hiring.
Current President Barac k Obama is in favor of the tax cut expiration across the board. If this happens it would almost certainly bankrupt America and force us into the worst recession since the Great Depression of 1933. Jobs will be lost in record numbers and our economy will be in dire straits. This tax will destroy the sluggish housing market and investors will cease to spend money; which will crash Wall Street.
There is a solution that most of the legislators are not considering or are overlooking. That solution is simply reworking the tax cuts to force the wealthy Americans to pay their equal share in taxes, while permanently freezing the small business and corporate taxes (to promote economic growth). It will also freeze the taxes for middle class Americans; which include the capital gains and death tax.
If these taxes expire, it will change America and it won’t in our best interest.
Written by Stuart Vener of Wilshire Holding Group. For more information on Stuart Vener visit http://wilshireholding.com