Prepare for the coming increase in taxes
I've read a few articles on the coming tax hike storm that will hit the middle class like a ton of bricks but as usual US News and World report hits the nail on the head. I've warned for a couple years now that the mortgage interest tax deduction was going away and should not be relied upon as part of ones decision to buy a home. I was often dismissed with hems and haws and "thats not going to happen". All of the articles I've read this year confirm that prediction. So those of you who were depending on that schedule A for tax planning, I suggest you find another schedule. Schedule C maybe?
Either way, here are some excerpts.
When the Tax Hikes Are Coming
If you love class warfare, your moment has arrived. The next several weeks, leading up to the November elections, are sure to be filled with resounding political invective over who should pay for Washington's profligate spending over the last decade. Democrats will argue that the rich and near-rich should pony up, since they have the most money to start with. Republicans will point to the needy, arguing that they've been getting too much aid for too long. Tea Partiers will struggle to decide whose benefits should be cut in order to achieve the smaller government they envision. All around, livelihoods will be threatened. Instead of the "silly season," the midterm elections will feel like the angry season.
It's the job of Obama and his fellow politicians to make sure that doesn't happen, and they're thinking about getting around to it some day, maybe. Most economists feel the solution is a combination of tax increases and spending cuts, [My comment: No COMMON SENSE says to cut spending and raise taxes, most "economists" say to spend more] since doing one or the other alone would be too draconian to disguise with the usual opposite-speak out of Washington. The first real opportunity to do something arises this fall, since income taxes for most Americans will automatically go up unless Congress and Obama extend some of the Bush tax cuts. Here's what's likely to happen:
Wealthy taxpayers are going to pay more. Obama wants to raise the top two income brackets from the Bush-era levels, which means the top rate will rise from 35 to 39.6 percent and the rate in the next bracket will rise from 33 to 36 percent. That effectively means that taxes will rise for individuals with income over $200,000 and couples earning over $250,000 (after accounting for deductions). There will also be new limits (same as the old ones, before the Bush cuts were enacted) on the total amount of allowable deductions, which will bump a few additional people into these higher brackets. To enact these "tax hikes" on the wealthy, Congress doesn't need to do anything--it will happen automatically at the end of 2010, once the Bush tax cuts are over.
The middle class will get a temporary pass, but it will only defer the inevitable pain. Obama has pledged no new taxes on the middle class, and no matter how implausible that is, it's hard to see him breaking that promise in his first term. Besides, raising the income tax rates on the majority of taxpayers would be risky in a lousy economy, so the odds are high that Congress will extend the Bush tax cuts for those who fall below the $200,000/$250,000 thresholds. The Senate, which moves slower than the House, may not get to that before the November elections, so the action may come in the lame-duck session that follows, leading to plenty of high-volume gamesmanship right up until the elections. But not much will change for the majority of taxpayersPossibilities include not just higher tax rates on those who already pay, but a host of scaled-back deductions--including the mortgage-interest deduction for home purchases--and a new value-added tax that could raise the cost of most goods and services. Exemptions for lower-income workers could be narrowed as well, so more people pay taxes. The tumult will be fascinating, since voters are likely to revolt no matter how bankrupt American becomes or what is fiscally prudent. But for now, politicians are looking the other way.
[My comment: And this is just at the FEDERAL level. But states and municipalities are hurting as well so I would expect tax increase and spending cuts across all governemnt jurisdictions]