Seniors: The Truth About Proposed Changes in Federal Taxes

Sep 12th, 2010 | By Sharon Shaw Elrod MSW EdD | Category: Senior Finances

It’s time again for SCJ to address some of the fears senior citizens are expressing about taxes.  Fear is generated by experts using fear-mongering tactics; it can only be countered by responsible people and organizations telling the truth, and trying to expose fear-mongering for what it is.

A lot of information is being bandied about on the news media and the Internet about whether or not the ‘Bush’ tax cuts should be extended or not.  These were the $1.6 trillion in tax cuts Bush brought to Congress just five weeks after his inauguration.  We had a record budget surplus at the time, and he campaigned (and won) on giving that back to the ‘people’.  Forty percent of the cuts went to the wealthiest 1% in the country.  That’s a category I don’t fall into, and most of our readers do not either.  Then in 2001 and 2003, two tax-cutting bills were passed,

which cut marginal personal income tax rates (affected most citizens), lowered to the point of extinction the estate tax (affected only the wealthiest), and cut dividends and capital gains taxes (affected only those who are fortunate enough to have investments).

NPR carried a story last week that bears some highlighting.  In it, comparisons were made between the ‘Bush’ tax cuts and President Obama’s plan.  Following is what is actually being proposed by President Obama vis a vis Former President Bush’s tax cuts:  

  • marginal tax rates would change in the President’s plan only for those married couples earning over $250k ($200k for singles); the top two tax rates would increase from 3-4/5%, depending upon married or single filing; other tax rates would remain the same for 98-99% of Americans;
  • the President’s plan continues current law on child tax credit and credit on dependent child care expenses; this affects families with dependent children;
  • in the President’s plan, personal exemptions would be reduced for couples earning more than $250,000 and single filers earning more than $200,000; itemized deductions (like those for mortgage interest and charitable donations) would be capped to the 28 percent bracket; this affects only the wealthiest 1% of Americans;
  • regarding capital gains and dividends, the President’s plan retains the zero and 15 percent rates but imposes a 20 percent rate on capital gains and dividends for taxpayers in the top two income tax brackets; this affects only the wealthiest Americans;
  • regarding estate tax, the President’s plan continues estate tax relief at 2009 levels: a $3.5 million estate tax exemption and maximum 45 percent rate; this affects those beneficiaries whose loved one dies with an estate exceeding $3.5million.
  • the President’s plan indexes the AMT (Alternative Minimum Tax) for inflation and extends the patch (which Congress passes routinely) through 2020; this has the potential to continue to provide relief for low and middle class Americans.

Since SCJ readers include quite a variety of income levels, we suggest you all go to this NPR article, scroll down about 1/4 of the page and find the calculator box; input your estimated annual taxable income, hover your curser over the empty boxes and see for yourselves just how the proposed changes would affect you personally.  All the SCJ staff and editors went through this exercise and discoverd our taxes would not change one penny!

So when you hear a media pundit or congressman/woman saying President Obama’s plan would raise taxes, you now know what taxes will be raised and what won’t, and you know how his proposed plan will affect you personally.  Truth always defeats fear!

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