Earlier this week, I explained how the latest Obama budget would impact the wallets of Social Security recipients. Now, I want to explain how several other new Obama tax hikes will impact you in the near future.
In the just-released budget, there’s a mountain of new taxes the size of Everest. President Obama is a guy who has never met a tax he didn’t like. These new taxes would bring the national tax load to a staggering 20% of our economy.
The following are ten new Obama taxes that, if they pass, will have a huge impact on you and will certainly hurt the already sluggish economy.
1. The “Chained CPI”
Of the new tax increases, the “chained CPI” is the most insidious. Obama’s budget would benefit by manipulating and altering the definition of inflation for all federal budget uses – including federal taxation.
Currently, income tax brackets are indexed to rising prices. By changing the number used to calculate inflation, we face a very real income tax hike.
This is a tax increase for everyone paying income taxes, including middle-class Americans.
It’s my belief that inflation is currently underreported, and experts in the field agree. The “chained CPI” will only make it worse.
Your taxes go up not because of real earnings, but phony earnings that simply keep you on pace with inflation. Congress’ Joint Committee on Taxation estimates that if enacted, a “chained CPI” would cause a $100 billion tax increase alone.
2. Itemized Deduction Cap
Also included in the Obama plan is a cap on itemized deductions. The deductions, such as those for charitable donations and mortgage interest, are usually the sacred cows of Congress.
But not any longer. The cap will directly hurt charities, the housing market, and (of course) taxpayers. Regardless of which tax bracket you belong to, this provision ensures that you can’t benefit any more than if you were in the 28% bracket.
There are three tax brackets above 28% – the 33%, 35%, and 39.6% brackets. Thus, many families will not be able to fully deduct mortgage interest, charitable deductions, or state taxes, among other expenses.
3. Increased Death Tax
The Obama budget would raise the estate tax rate from the current 40% to 45%. And the budget would also reduce the inflation-indexed death tax “standard deduction” from $10.3 million for married couples to $3.5 million with no inflation allowance.
4. The “Buffett Rule”
The Obama budget would inflict the newfangled “Buffett rule” on taxpayers whose adjusted gross income is above $1 million. These taxpayers would suffer an average tax rate of 30%.
5. Increased Tobacco Tax
Tobacco users face a more than 93% increase in the tobacco tax, from $1.01 to $1.95 per pack. On average, a typical smoker in America makes about $40,000 per year, meaning this tax directly targets middle-class Americans.
But this is not the first time Obama has raised tobacco taxes. In 2009, he signed into law a 156% increase in the tobacco tax. The tax hit on smokers will total $78 billion.
6. IRA and 401k Plan Tax Hikes
There are new tax hikes and restrictions on IRA and 401(k) plans in the latest budget proposal.
Under the Obama plan, the total account balance in all tax-favored IRAs and 401(k)s is restricted to a combined $3 million. Plus, he would mandate that non-spouse beneficiaries of IRAs and 401(k)s distribute all money within five years, instead of over their lifetime. In addition, the budget coerces all employers with 10 or more employees to open payroll-deduction IRAs.
7. Greater Capital Gains Taxes
Under existing tax codes, capital gains are taxed at rates lower than ordinary income. This is because investment capital faces double taxation. The top capital gains tax rate is 24 percent.
Sometimes capital gains are received by partners in investment structures. These capital gains are called a “carried interest.” The Obama plan taxes these capital gains at ordinary income tax rates, rather than the standard reduced rates.
8. Energy Taxes
Energy taxes litter Obama’s budget. Naturally, these tax hikes will raise energy prices on consumers. Higher taxes on energy will cost a whopping $94 billion.
9. Increased Taxes Abroad
The U.S. is one of the only countries that taxes the profits of U.S. companies and American citizens worldwide. This exposes American firms to taxation in two different countries on the same earnings. Ideally, the U.S. should only tax income earned within the United States. But the Obama budget increases the odds that double taxation will hit hard, no matter where the income is earned.
10. Financial System Taxes
These taxes are also throughout the proposed budget. Obama would inflict taxes on banks, brokerage firms, and life insurance companies. And unfortunately, these taxes will simply be passed on to those of us that save and invest.
If this passes, expect higher bank fees and bigger investment commissions. This tax increase will affect our wallets to the tune of $94 billion.
The Grand Total
The new taxes in the Obama budget total one trillion dollars over ten years. Add a trillion dollars to the lost opportunity costs as the economy sinks deeper into trouble from these misguided policies, and you have a prescription for trouble.
My advice? Hang on to your wallet. It could be a tough year.
This article originally appeared at CapitolHillDaily.com and is reprinted here with permission.
Photo credit: terrellaftermath