The Tax “Tidal Wave”

 

Congress Must Prevent Massive Tax Increases from Hitting Families and Job Creators on January 1, 2013

“It’s been called the ‘tax tidal wave’ and even ‘Taxmageddon’ – and it’s a central issue that must be addressed in order to avoid the so-called ‘fiscal cliff’ when the clock strikes midnight on December 31, 2012.

“But by whatever name it’s known, one thing is clear: the looming, year-end expiration of the low-tax policies originally enacted in 2001 and 2003 – and extended by a Democratic-controlled Congress and President Obama in 2010 – threatens our already weak economy with the largest tax increase in American history.

“Ten days ago, the House passed legislation to extend all of these low-tax policies again – while also establishing a path to comprehensive tax reform next year – sending a clear signal to families, employers, and the financial markets that taxes will not go up on January 1, 2013, as a result of their expiration.

“The economic impact of these potential tax increases would have a devastating effect on the economy. According to the Joint Committee on Taxation (JCT), a one-year extension of these low-tax policies – including a one-year AMT patch – would prevent a $300 billion tax increase.

“Extending these policies on a permanent basis – or, enacting comprehensive tax reform consistent with historical revenue levels – would prevent a $4.3 trillion tax increase over the next decade.

“In light of the continuing string of dismal economic data and jobs reports, prominent Democrats – such as former President Bill Clinton, former Obama economic advisor Larry Summers, and Senate Budget Committee Chairman Kent Conrad (D-ND) – are joining the growing bipartisan chorus calling for an extension of these policies for all taxpayers.

“The question is: will President Obama, Senate Leader Harry Reid and his majority work with House Republicans to prevent this massive, tax increase on small businesses and on every American who pays income taxes, or will they insist on higher taxes to pay for wasteful Washington spending?

“If the low-tax policies originally enacted in 2001 and 2003 – and extended on a bipartisan basis in 2010 – are allowed to expire at the end of this year, what will it mean for individuals, families, and small businesses on January 1, 2013?

“The House Ways and Means Committee has provided extensive data that answer these questions.  Because maintaining current tax rates is so important to a healthy economy capable of creating private sector jobs, I will be using this e-News in coming weeks to outline what’s at stake. 

“I am committed to extending current tax rates and supporting comprehensive tax reform that lowers rates, closes loopholes and makes the tax code flatter and fairer.  These tenets are part of my action plan to create jobs.  You can read about the entire action plan at my website:http://frelinghuysen.house.gov/.

“Next week, we’ll have information on how the ‘tax tidal wave’ will affect typical taxpayers.”

Rodney Frelinghuysen

 

The “Tax Tidal Wave”: By the Numbers

More than $4 trillion: Tax increase on Americans over the next 10 years if all low-tax policies originally enacted in 2001 and 2003 expire at the end of the year.

$383.6 billion: Tax increase prevented by House Republicans’ extension of those current tax policies for one year.

Effects on Small Businesses

940,000: Business owners hit with higher taxes if the “Tax Tidal Wave” is allowed to strike.

53: Percent of small business income that will be hit with higher taxes if Washington allows the top two tax rates to rise.

710,000: Fewer jobs if those top two tax rates rise.

Effects on Typical Middle-Class Taxpayers

$2,200: Tax increase a family of four earning $50,000 per year if Washington lets all the 2001 and 2003 tax policies expire at the end of the year.

$1,100: Tax increase a single parent earning $36,000 per year could face if Washington lets all the 2001 and 2003 tax policies expire at the end of the year.

$1,700: Tax increase a married senior couple earning $40,000 per year could face if Washington lets all the 2001 and 2003 tax policies expire at the end of the year.

Alternative Minimum Tax

31 million: Households that will be hit by the Alternative Minimum Tax (AMT) in 2013, if Washington does not stop the tax hike.

Seniors and Tax Hikes on Investment Income

9 million:  Number of tax returns filed by seniors – half of all returns filed by seniors – that will face higher taxes on investment income if Washington does not stop the tax hike.

More than $77 billion: Dividend income earned by seniors in 2008, 48 percent of total dividend income earned by all Americans that year.

More than $150 billion: Capital gains income earned by seniors in 2008, 30 percent of total capital gains income earned by all Americans that year.

Impact on Families

$1,028: Average amount of higher taxes paid by 31 million families if Washington does not stop the tax hike, and the child tax credit is cut in half, from $1,000 to $500 per child.

$591: Average amount of higher taxes paid by 32 million married couples if Washington does not stop the tax hike, and the marriage penalties in the standard deduction and the 15 percent bracket are reinstated.

$502: Average amount of higher taxes paid by 88 million taxpayers if Washington does not stop the tax hike, and the 10 percent bracket is eliminated, raising the lowest tax rate to 15 percent.

40.8: The top effective marginal tax rate for ordinary income if rates increase at the end of the year (including the re-imposition of the “Pease limitation”).

25: Percent that capital gains income will be taxed at in 2013, up from 15 percent, if the current capital gains tax rates expire (when including the re-imposition of the “Pease limitation” and the new health care law’s surtax on net investment income).

44.6: Percent that dividends income will be taxed at in 2013, up from 15 percent, if the current dividends tax rate expire (when including the re-imposition of the “Pease limitation” and the new health care law’s surtax on net investment income).

The Death Tax

55: Top death tax rate (with a $1 million dollar exemption) if the death tax is allowed to revert back to pre-2001 levels – compared to the current 35 percent rate with a $5 million exemption.

Nearly 14: How many times as many small businesses would be subject to the death tax in 2013 compared to 2012 if Washington does not stop the tax hike.

24: How many times as many farms would be subject to the death tax in 2013 compared to 2012 if Washington does not stop the tax hike.

Previous Bipartisan Support to Stop the Tax Hike

85: Current House Democrats who voted to extend the current tax rates at the end of 2010.

40: Current Senate Democrats who voted to extend the current tax rates at the end of 2010

Of Note: ID Thieves Collect $5.2B in IRS Refunds

The Internal Revenue Service may have handed out more than $5.2 billion in income tax refunds last year to filers using stolen identities, an analysis by the Treasury inspector general for tax administration has found.

In one instance, the agency issued more than $3.3 million in potentially fraudulent refunds to a single address in Lansing, Mich., that was used to file 2,137 returns.

The most refunds, in dollar terms, were sent to Tampa, Fla., where the IRS issued an estimated $468 million in potentially fraudulent refunds on almost 89,000 returns.

The inspector general recommended legislation to give IRS access to the National Directory of New Hires database to improve its ability to identify tax returns with phony income documentation.