People complain about how early stores begin anticipating holidays. Christmas decorations creep onto the shelves before Thanksgiving and red Valentine's hearts appear soon after New Year's. So why would someone write about ringing in the new year in August?
It's because 2011 won't just be another change on the calendar. Major tax changes go into effect as of January 1, 2011, which will impact American families, companies, and the economy. Americans need to prepare and pay attention to the decisions Congress makes in the crucial coming months about next year's tax laws.
The nonprofit Tax Foundation has a helpful overview of just how many tax rates are set to spike when the ball drops. For example, in 2011, married couples will no longer enjoy a standard deduction that is twice that of a single filer (so the marriage penalty will be back in full force). The child tax credit will be cut in half. Income tax rates will rise across all income groups. Taxes on investment will soar, with top earners facing a 33 percent increase in their tax rate on investment income. Estate taxes—which are currently zero—will return so that assets in excess of $1 million will be taxed at 55 percent.
President Obama recognizes that allowing all these taxes to increase would be devastating to the economy and to American families. So he has cherry-picked some tax cuts that he would like to preserve. In his budget, Obama proposes maintaining the current standard deduction so that married couples aren't penalized for staying married. He also wants to preserve the current child tax credit and the lowest four tax rates. Obama also doesn't want taxes on investment to rise quite as much as under current law: he'd just boost the government's take of those with higher incomes. Estate taxes would be reinstated, though at slightly less confiscatory rates: Obama wants a $3.5 million exemption and tax rate of 45 percent.
Congress likely will take many of President Obama's suggestions and reduce the wallop from the currently scheduled tax increases. Yet families should be warned: no one will be spared from the effects of these tax increases. Those with more modest incomes may not face a larger tax bill, but they'll still pay a price as the broader economy suffers.