By JLP | July 22, 2010
I saw this article on the IBD website about the future of the Federal Income Tax. I’m not looking forward to this future:
“The lowest bracket for the personal income tax, for instance, moves up 50% — to 15% from 10%. The next lowest bracket—25%—will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%.”
What does that mean, dollar-wise? Let’s take a look at a family with $50,000 in taxable income. Not adjusting the brackets for inflation but adjusting them for the new percentages, here is what how they might look from 2009 to 2011:
So this family is looking at paying $835 more just in this part of their income tax bill—and that’s not counting adjustments for child tax credits or other adjustments.
According to the article, the marriage penalty will also make a comeback. Capital gains taxes will go up to 20% (from the current 15% rate). Taxes on dividends will also go back up to a maximum of 39.6%.
There will also be a new 3.8% medicare tax on capital gains for those with incomes over $250,000 (married filing jointly—$200,000 for single filers).
Complicating all of this is the alternative minimum tax, which if it isn’t “fixed,” will trap 28 million families.
The estate tax will also make a comeback in 2010.
The article lists several other taxes too. Combine all these with state and local taxes, which are most likely to go up since states and municipalities are broke, and we’re looking a spending lots more in taxes.
Time to sock away the maximum you can into your 401(k) and Roth IRAs (no tax benefit up front but can help out years down the road during retirement).