The Taxman Cometh and Congress is Not Representing us. Sound familiar?
Lee’s Summit, July 2, 2010 – The end of the Bush tax cuts is coming and taxes are about to go through the roof sucking the wind out of the sails of any rebound we’re getting from the recession.
Business works on cash flow. Don’t ever think that profits are enough, it takes cash to run a business, and taxes will take more of that precious business commodity away. Liquidity through financial institutions is still tight, suppliers need to get paid, and customers are doing all they can to keep their money longer. The difference between when you pay for your materials and when you get paid by your customers is what the cash in the business needs to cover.
Taxes going up, will mean that cash will go down as businesses send it to Washington instead of paying more employees. Higher costs, due to higher taxes, will put greater pressure on inflation. So we’re facing the forming of a perfect storm: High Unemployment, Inflation, and the Interest Rates will climb to fight the inflation. That is called Stagflation by economists; the same, who said that it was impossible, were proven wrong during the Carter years and they will – sadly – be proven wrong again.
Let’s make a list, and check it twice that way when Christmas comes will know what we’ll owe in taxes:
- Lowest tax rate (mostly personal) up from 10% to 15% (50% increase)
- The 25% bracket goes up to 28% (12% increase)
- The 28% tax bracket climbs up to 31% (11% increase)
- The 33% tax bracket climbs up to 36% (9% increase)
- Top income tax rate (business and personal) up from 35% to 39% (11% increase)
- Marriage Penalty returns so working couples will pay more taxes than 2 single people.
- Child Tax Credit cut from $1,000 per child to $500 per child.
- Dependent care and adoption tax will be cut.
- Inheritance (Death) Tax returns with a top rate of 55%
- Capital Gains tax up from 15% to 20% (33% increase)
- Dividends tax will rise from 15% to 39.6% (164% increase)
- Alternative Minimum Tax rate is estimated to now reach out to 28 million families, where today it only affects the top 4 million income families.
These are simply the direct tax increases that we’ll feel in our next tax year. But the taxman is not done yet.
Some of the tax deferrals we have are also going away as part of the Health care Reform Act:
- Health Savings Accounts – Eliminated plus increases in the penalty for early withdrawal from 10% to 20% (100% increase)
- Flexible Spending Accounts – Eliminated
- Flexible Spending Accounts for Special Needs Kids – capped at $2,500, there is no cap now.
- Health Reimbursement Accounts – Eliminated
And still the taxman is not done because he’ll also hit businesses – that’s the engine of our economy and right now of our recovery.
- Depreciation rules for small businesses are changing where they can no longer expense 50% of up to $250,000 in capital expenses. It drops down to 50% of $25,000.
- Elimination of R&D tax credits
The Bush Tax cuts ended on December 31, 2009 (that means this year’s taxes will be higher).
Congress has been asked over and over by all of us to maintain the Bush Tax Cuts, but the answer is “they were only tax cuts for the rich.” Look at the list of taxes that have gone up and tell me who is getting hit the hardest here?
It has been proven by John Kennedy, Ronald Reagan and George Bush, that if you want to fire up the economy; let the people keep their money and they’ll generate economic growth. President Obama and the current Congress can’t figure out why the economic growth is not there, nor is it improving at the normal bounce rate.
Look at the money that the taxman is extracting from the economy and ask yourself this question: if business has no money to grow and hire people, who will?
This month Lee’s Summit is in the middle of the 2011 budget planning season. The budget committee has been debating whether the current relatively pessimistic revenue projection for 2011 is pessimistic enough. After cometh the taxman, revenues will plummet with the approaching Obama recession.
Keep all these things in mind when you go to the ballot box for the August primaries, and then for mid-term elections in November.
The Lee’s Summit Conservative