Large tax increase on the horizon

If Americans thought that preparing their tax returns for 2011 was a painful thing to do, the U.S. Chamber of Commerce says just wait until you prepare your return for 2013. Individuals and small businesses could be set to see a levy of tax increases, new taxes and expiring deductions that are scheduled to take effect the beginning of next year.

Small businesses will face one of the largest tax increases in history unless Congress takes action this year as the Bush tax cuts are scheduled to expire the end of December. The maximum tax rate for individuals who earn $200,000 or more and couples filing jointly who earn $250,000 or more per year will go from 35% to 39.6%.

Not only do we Americans pay federal income taxes but we pay state income taxes, taxes on property we own, county taxes, school taxes, sales taxes and other hidden taxes. Small businesses match the social security taxes that are taken out of their employees’ paychecks as well as the Medicare tax.

In addition to the above all itemized deductions and exemptions for higher income earners will be limited. Capital gain taxes will increase from the present 15% to 20% and taxes on dividends will increase from the present 15% to the pre-Bush era of 39.6% which will have a huge effect on senior citizens who rely on their dividend income for daily living expenses.

Estate taxes, which in my opinion is a form of double taxation and very burdensome on small businesses and farmers, will increase in 2013 from 35% to as high as 55%. Presently estates that are valued up to $5 million are exempt from the tax and in 2013 the exemption will drop to $1 million per spouse.

President Obama’s budget proposal for the fiscal year beginning October 1, 2012 and his plans for corporate tax reform will make things even worse. Obama’s fiscal year 2013 budget calls for a $2 trillion tax hike much of it on the backs of successful small businesses. It will let the Bush tax cuts expire for higher income earners, eliminate or reduce itemized deductions and limit rates on other deductions. His budget will also increase taxes on financial industries as well as on oil and gas.

“What’s the administration’s budget strategy? Spend like there is no tomorrow, drive deficits to record levels, heap huge tax increases on America’s most productive citizens and ignore the most urgent challenges facing the economy, including tax reform and entitlement programs,” says U.S. Chamber President and CEO Tom Donohue.

The Chamber is lobbying Congress and building public support for a leaner, simpler and fairer tax code. One of its top priorities is to preserve current individual tax rates, capital gains and dividend rates for all taxpayers.

Raising these rates would hamper economic growth, hurt new job creation and take money away from individuals and businesses that create new jobs, spur investments, boost consumption and promote economic growth.

The Chamber is also working to repeal the estate tax. If Congress does not pass a full repeal they should make the present 35% rate and $5 million ($10 million per couple) exemption permanent, Chamber officials say.

Simply put, if something isn’t done this year we can expect large tax increases in 2013.