The Impending Tax Increases

In 2005:

• The child tax credit will decrease from $1,000 to $700.

• The standard deduction for couples as a percentage of the standard deduction for singles will decrease from 200% to 174%--reinstating the marriage penalty.

• The top end of the 15% marginal income tax bracket for couples as a percentage of the top end for singles will decrease from 200% to 174%--reinstating the marriage penalty.

• The 10% marginal income tax bracket will contract from covering the first $7,000 of income for singles and $14,000 for joint filers to covering only the first $6,000 of income for singles and $12,000 for joint filers.

• The exemption for the Alternative Minimum Tax (AMT) will decrease from $40,250 to $33,750 for single filers and from $58,000 to $45,000 for married couples filing jointly.

• The bonus depreciation will decrease from 50% to 30%.

In 2006:

• The section 179 small business expensing cap will decrease from $100,000 to $25,000, and the definition of a small business will decrease from $400,000 to $200,000.

In 2009:

• The personal capital gains rate will increase from 15% and 0% to 20% and 10%.

•  Dividends will no longer be taxed at the personal capital gains rates, thereby increasing the double taxation of dividends by as much as 62%.

In 2011:

• The marginal income tax rates will increase as follows:

  • --35% bracket will increase to 39.6%

  • --33% bracket will increase to 36%

  • --28% bracket will increase to 31%

  • --25% bracket will increase to 28%

  • --10% bracket will increase to 15%

• The child tax credit will decrease from $1,000 to $500.

• The annual education IRA contribution limit will decrease from $2,000 to $500.

• The standard deduction for couples as a percentage of the standard deduction for singles will decrease from 200% to 167%--reinstating the marriage penalty.

• The top end of the 15% marginal income tax bracket for couples as a percentage of the top end for singles will decrease from 200% to 167%--reinstating the marriage penalty.

• The estate tax using the “stepped up” basis will return with a 60% maximum rate (including surtax) and $1 million exemption, after years of decreasing estate tax rates, increasing exemptions, and one year using the more fair “carryover” basis to calculate the tax due.

• The annual IRA contribution limit will decrease from $5,000 plus post-2008 inflation to $2,000.

*This list is not exhaustive.

NOTE: The items above that appear twice do so because of phase-ins or phase-outs in the law in between the two appearances. For example, the standard deduction for couples decreases from 200% of singles to 174% in 2005. It then gradually rises back up to 200% by 2010 and then decreases to 167% in 2011.

Special thanks to Americans for Tax Reform.