It appears that President Obama and the GOP agreed on Monday to extend the Bush tax cuts for the next two years.
Included in the deal is the extension of the 15% rate on dividends and capital gains, an additional 13 months of jobless benefits, and a 2% employee payroll tax cut. (Payroll tax is another word for the FICA/Social Security withholding.) For a family earning $50,000, the savings is $1000, someone earning the maximum income subject to withholding, $106,800 in 2011, the savings is $2,136, double that for a high earning dual income couple. I don’t know how this slipped in, never caught that it was part of any discussion. I suppose I shouldn’t look a gift horse in the mouth, but it’s money the social security system will be in worse shape for the lacking it.
Also in the mix is another adjustment to AMT, the alternative minimum tax that was meant as a safeguard against the high earners not paying any tax, but now ensnares us commoners.
Last, the estate tax will return with a $5M exemption and 35% rate after that. Wow, that’s not bad, but let’s hope it’s made more lasting than an annual negotiation. The larger issue with the estate tax is less about the numbers, per se, and more about the moving target. If it’s kept at $5M (or even the $3.5M we had in 2009) with a provision for increasing with inflation, it would be easier to plan one’s affairs long term.
What do you think? Are you glad this is behind us, or do you feel these concessions will only worsen the financial crisis?
Joe
I’d like to know how the payroll tax cut is going to affect those of us who are on Social Security. My whole family (myself, 2 kids, and my parents) are on it, for me and the kids it’s our sole income. We’ve already seen raises in Medicare premiums and cuts in cash benefits as it is–how the heck they think three people can manage on just over $900/month is beyond me. We can barely manage buying our own groceries some months, fortunately my parents pick up the housing costs (heat, electric, etc). And I just got a letter the other day from them that there’s no COLA (again!) this year…they claim costs haven’t gone up, what BS! Any idiot can see costs have been going up and up the last couple years. It really seems like we’re all just screwed.
Excellent question.
First – I agree with you that inflation is greater than zero. Food, fuel, nearly everything except electronics is up.
If this tax break passes, my wife and I will get a windfall we don’t need at the expense of a system that’s running a deficit and hurting people who need it most.
My wife and I both work in high tech positions. We stand to benefit from this, a benefit we don’t need and didn’t ask for. We were prepared for a slight increase, and flat to 2010 would have been ok too. This bill is going to worsen the deficit in a way that I find pretty disturbing. Social Security is a Ponzi scheme to begin with. This will only worsen the situation.
FWIW – in 2012 I will run our taxes on the 2010 filing software. Any increase we see from this change is getting added to our charitable donations. It’s a gesture that will have no impact on the big picture, but it will make me feel better and source some material for a post on the topic.
It’s an interesting bill (to become law today, I see). I am not happy about the estate tax provisions nor continuing lower tax rates for the wealthy. But it extends unemployment benefits and cuts the payroll tax by a third for a year. Three-quarters of Senate Democrats voted for the bill. Over half the House Democrats did. I hope they know what they’re doing. I wish I understood better the bi-partisan drive in the 1930s to maintain a balanced budget even while stimulating the economy in various ways. Because we sure do not seem to care about a balanced budget now. The NY Times is opining this in a lame duck Congress is some kind of coup for Mr. Obama.
Running your 2012 taxes on the 2010 software, and reporting on how you will use the difference, is a great idea for a post!
Thanks! I’ll start to put it together. May be brief, the concept is barely one sentence. Writing is more art than science some days.
There’s some semantics involved I suppose. Those tax cuts had a sunset provision. So if nothing were done now, the rate would have reverted to prior, higher rates. A $200K earner is not, by definition, wealthy. Wealth is a measure of one’s assets, right? A guy can earn $500K, blow through it all, and have zero assets year after year. But these words are used loosely. I’d suggest “high earner.”
1. the “tax cut” for the “wealthy” has two fundamentally flawed assumptions.
The tax rates were cut in 2001 and 2003. The fact that the rates are remaining the same is not a “tax cut”.
The idea that someone making $200,000 per year is “wealthy” while Bill Gates and Warren Buffet (worth about 30 billion each) can flatten their income to pay virtually nothing is ludicrous.
2. If you want to tax the wealthy, the only way to do it is via some sort of a property tax that includes bank accounts and securities. Then you are taxing the wealth, not the income of someone who is a high earner but may not be wealthy. Example: a doctor making $200,000 / year is not unheard of – but they might still be paying on student loans of $500,000 or so and actually have negative assets until they have paid those off.
3. get real – the politicians have become wealthy and they won’t let their wealth be taxed only income, so that others can’t get wealthy like they are.
Regarding sunset provisions, there are states that require all laws to be reread and voted upon by their legislator on a periodic basis. There are states that limit their legislators to 90-120 days per year in session unless the executive calls them back for a special session with a limited agenda.
If either of these provisions were in place at the federal level, there would be a lot less of Colonel Potter’s “horse pucky” coming out of DC and Congress might actually have approval ratings rather than disapproval ratings.
Seriously, the Democrats had majorities in both houses from 2006 to date – they could have written the tax codes and the rates the way they wanted them if they hadn’t waited until the last minute and then run into a filibuster threat in the Senate. They could have had what Nancy Pelosi wanted if they hadn’t chosen to work on high priority bills like the stimulus that didn’t stimulate and take over GM dropping the third highest selling auto line (Pontiac) and the Health Care bill that nobody read until after it passed and ….
It’s an interesting bill (to become law today, I see). I am not happy about the estate tax provisions nor continuing lower tax rates for the wealthy. But it extends unemployment benefits and cuts the payroll tax by a third for a year. Three-quarters of Senate Democrats voted for the bill. Over half the House Democrats did. I hope they know what they’re doing. I wish I understood better the bi-partisan drive in the 1930s to maintain a balanced budget even while stimulating the economy in various ways. Because we sure do not seem to care about a balanced budget now. The NY Times is opining this in a lame duck Congress is some kind of coup for Mr. Obama.
No, sad to say. 300M+ people and we appear unable to produce one viable leader.
I am enormously troubled about the upcoming election. When I think about everything that is occuring in Iraq, Afghanistan, and the Middle East (not to mention our own economy) we definitely need a superior leader. I’m not at all convinced that Mr. Obama or any of the Republican contenders thus far have the experience or skills necessary to get the job done the way it has to be accomplished. Being president of the U.S. is an exceptionally challenging job. Do you think there is someone out there with the experience, skill, and moral conviction to do the job?