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Taxes to Watch Out for in 2010

On October 12, 2011, in Tax Deductions, by admin
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Last week CEO Roni Deutch posted an entry to her personal blog explaining tax increases to watch out for in the New Year. You can find a few of the taxes listed below, but be sure to check out the full text at Roni Deutch: The Tax Lady Blog.

Value Added Taxes

I have warned about the possibility of a value added tax (VAT) in several blog entries throughout the year, and every day it becomes a more likely possibility. The benefit to the government is that a VAT could generate billions of dollars in revenue. It is meant to add taxes to manufacturers but consumers always end up paying higher prices as a result. Proponents claim that increased tax credits for low-income families would help with the added VAT burden, but in today’s economy consumers are not spending like they used to. If a VAT was implemented it would almost certainly reduce consumer spending.

Fair Tax

You may remember hearing the phrase “fair tax” during the recent presidential election. Republican candidate Mike Huckabee was a large supporter of this tax, which would pretty much eliminate the current tax system, and possibly even the IRS. It may sound nice, but to make up for the lost revenue the Federal government would need to impose a 23 to 30% tax on the purchase of all goods. Although supporters say that the price of products would decline without payroll or corporate taxes, there is no way to know what the “break even” point would be. This new type of tax is unlikely to come to fruition in 2010 as there are no bills currently being debated in Congress. However, it may gain traction as a campaign talking point during the run-up to Congressional elections in late 2010.

Estate Taxes

As I explained earlier last week, Congress failed to take any action on the estate tax. This means that in 2010 there will be no estate tax levied whatsoever, unless Congress passes a retroactive bill. However, beginning in 2011 the estate tax will return and target even more taxpayers. If current laws are not changed, in 2011 the estate tax will return to a historic rate of 55%, and it will get levied on all estates valued at $1 million, which would represent the highest estate tax since the early 1990’s. Unfortunately for anyone inheriting a sizeable estate in 2010, Democratic leaders in Congress have vowed to deal with the estate tax as soon as they return to session, which could result in a permanent 45% estate tax rate.

War Taxes
It is widely known that military spending, especially during a war, adds up quickly. Over the past eight years, the costs of the military efforts in Afghanistan and Iraq have cost an estimated $1 trillion. As such, David Obey, (D – WI) – chair of the House Appropriations Committee – has proposed a war surtax that would range from an additional 1 to 5% income tax on the highest-earning households. Not surprisingly, there is a lot of opposition to this tax, and many experts claim that unused TARP funds could be used to pay for the military costs. On the other hand, some insist that a war tax would create a nationwide sense of urgency to end the wars.

 

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