Bush Tax Cuts Expiring Will Hit More Than “The Rich”
If you listen to the Obamacrats, letting the Bush tax cuts expire on 1 January 2013 will only impact “the rich,” so middle-class people should cheer them expiring.
Over at SmartMoney, however, they explain several reasons that just about everyone will see a negative impact if these tax cuts are allowed to expire. I’ll focus on just two.
First off, it’s not just the top brackets that will go up, it’s every bracket:
You may think only individuals in the top two brackets will face higher federal income taxes if the Bush cuts go bye-bye as scheduled on Jan. 1, 2013. Not true. Unless Congress takes action and the president goes along (whoever that is), rates will go up for everyone — not just “the rich.” Specifically, the existing 10% bracket will go away, and the lowest “new” bracket will be 15%. The existing 25% bracket will be replaced by the “new” 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.
Bottom line: We’ll all see higher taxes.
And if that wasn’t bad enough, married couples filing jointly will see the return of the “marriage penalty,” where they get a lower deduction that they would if they each filed separately.
The Bush tax cuts included several provisions to ease the so-called marriage penalty. The penalty can cause a married couple to pay more in taxes than when they were single, which is nuts.
Right now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as for singles. This helps keep the marriage penalty from biting lower and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many folks.
Currently, the standard deduction for married joint-filing couples is double the amount for singles. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles.
Bottom line: lots of lower and middle-income income couples will face higher tax bills due to a harsher marriage penalty.
Anyone that tells you that the Bush tax cuts expiring only affects “the rich” is either clueless about the truth, or deliberately lying to you.