President Obama introduced a new budget plan to Congress for 2011. The new budget plan contains some relatively large tax increases for some Americans. Let us educate ourselves about some of the new potential tax changes.
The new budget proposal will accomplish its tax increase objectives mainly by letting Bush tax cuts expire. In fact, tax on high income earners will rise by $1 trillion over the next 10 years.
HIGH INCOME EARNERS
Under the plan, tax rates of people earning MORE than $200,000 or $250,000 for married couples will return to 36% and 39.6 from the current 33% and 35%.
Under the budget plan if you are making $200,000 or $250,000 for married couples, your capital gains taxes and dividends will rise to 20% from the current 15%.
Mr. Obama would, nonetheless, extend the Bush tax cuts including the 15% tax on capital gains and dividends for single taxpayers making less than $200,000 or joint filers making less than $250,000.
LIMITATION ON PERSONAL EXEMPTION AND ITEMIZED DEDUCTIONS
Limits on high earners will expire next year without any action from Congress. This means high income earners under the current law could lower their taxes by up to 39.6% of deductions such as mortgage interest and some charitable contributions. However, under the current plan the 39.6% would be reduced to 28%.
Mr. Obama proposed the estate plan which was repealed on January 1, 2010, to be reinstated to 2009 levels. This means estates above $3.5 million will be taxed at 45% with an exemption for estate wealth under $3.5 million. President Obama has proposed extending such rates permanently.
PAYROLL TAX CREDIT
The plan drops a proposal to make permanent payroll tax credit that makes workers’ payckecks richer by $400. Mr. Obama proposed extending such tax credit through 2012 which was his signature tax-cut campaign promise for middle-class workers.