OBOTS are you listening? EVERYONE'S TAXES ARE GOING UP! EVERYONE! That includes YOU TOO!...CAN YOU SPELL LIAR!...

Six Months to Go Until
The Largest Tax Hikes in History



July 1, 2010
Contact: Ryan Ellis, ATR Tax Policy Director: rellis@atr.org

In just six months, the largest tax hikes in the history of America will take effect. They will
hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business
owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6
percent (this is also the rate at which two-thirds of small business profits are taxed). The
lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized
deductions and personal exemptions will again phase out, which has the same mathematical
effect as higher marginal tax rates. The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for
married couples) will return from the first dollar of income. The child tax credit will be cut in
half from $1000 to $500 per child. The standard deduction will no longer be doubled for
married couples relative to the single level. The dependent care and adoption tax credits will
be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after
January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person
leaving behind two homes and a retirement account could easily pass along a death tax bill to
their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent
this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6
percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare
There are over twenty new or higher taxes in Obamacare. Several will first go into effect on
January 1, 2011.
They include:
The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to
use health savings account (HSA), flexible spending account (FSA), or health Page 2 of 2
reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter
medicines (except insulin).

The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible
spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There
is one group of FSA owners for whom this new cap will be particularly cruel and onerous:
parents of special needs children. There are thousands of families with special needs children
in the United States, and many of them use FSAs to pay for special needs education. Tuition
rates at one leading school that teaches special needs children in Washington, D.C. (National
Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can
be used to pay for this type of special needs education.

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax
on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them
relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty
surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.

The major items include:
The AMT will ensnare over 28 million families, up from 4 million last year. According
to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an
explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These
families will have to calculate their tax burdens twice, and pay taxes at the higher level. The
AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small
businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment
purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses
can expense half of their purchases of equipment. In January of 2011, all of it will have to be
“depreciated.”
Taxes will be raised on all types of businesses. There are literally scores of tax hikes on
business that will take place. The biggest is the loss of the “research and experimentation tax
credit,” but there are many, many others. Combining high marginal tax rates with the loss of
this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees
will not be available. Tax credits for education will be limited. Teachers will no longer be
able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut.
Employer-provided educational assistance is curtailed. The student loan interest deduction
will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired
person with an IRA can contribute up to $100,000 per year directly to a charity from their
IRA. This contribution also counts toward an annual “required minimum distribution.” This
ability will no longer be there.