Now that America’s politicians are done bickering and squabbling, we have an idea as to how the American tax situation will play out in 2011 and 2012. Following the tradition of the last decade, Americans will be exempt from footing large portions of the federal budget, as tax brackets stay the same, and other taxes are cut. Also included are extensions of tax credits for college students and an extension for unemployment benefits. What’s not included? How all this will be paid for.
Tax Breaks – $207.5 Billion
Back in 2001, and 2003, George Bush sponsored two tax cut bills that effectively lowered the federal tax burden on American citizens. These tax cuts included reductions in tax obligations anywhere from 3-5 percent across the board, and also adjusted the level of income you needed to have to fit into most tax brackets.
These tax breaks have been extended, temporarily, for the next two years. Tax rates are staying the same, at 10%, 15%, 25%, 28%, 33% and 35%. Also, high income earners will still be allowed to make itemized deductions.
Alternative Minimum Tax – $137 Billion
The passage of this tax cut bill will also protect over 20 million people from having to pay the alternative minimum tax. As long as your income falls within $47,450 for individuals, and $72,450 for couples filing jointly, you won’t be subject to this tax. These salary levels are also set to increase slightly in 2012.
Social Security Tax Cuts – $112 Billion
This is one of the more shocking announcements in my book. Social Security just recently announced back in August of this year that they paid out more than they took in for the first time in history, and still, Americans will be paying 2% less in social security taxes for the year 2011. This cut is limited to the first $106,800 that a person makes, but it applies to everyone, regardless of income, unlike the Making Work Pay program, which was limited to lower wage earners. Because of this 2% cut, all Americans should see a small bump in their paychecks right off the bat in 2011.
Unemployment Benefits – $57 Billion
In a not surprising move, an addition to the bill was to extend the unemployment benefit filing deadline by another 13 months. With so many out of work, this had to be a given.
College Credit – $18 Billion
Anyone going to college in 2011 and 2012 will be given the chance to apply for the American Opportunity Tax Credit, which is a replacement for the HOPE Credit which has been in effect for a while. Students can receive $2500 each year they are in college as long as they earn less than $90,000. ($180,000 for joint returns)
The Total Cost For All These Cuts – $858 Billion
While this is all fine and dandy, I pose the ultimate question. How do we pay for this down the road? It’s pretty obvious that our country has been running deficits for a long time. I liken this whole tax bill to the way that too many Americans have been living for the past couple decades. All it does is focus on the short term problem. Lets get through the next two years and figure it out later. I have a feeling that, in the long run, we will ultimately pay more than if we had let these tax breaks slide under the radar.
If I knew that my money would be put to good use, I would be fine with paying higher taxes to get our country back on the right track. I say this, despite the dangers of over-taxing a population. But that’s just the thing. I really question the motives of our politicians. Numerous bills have been passed recently that had little public support, so it’s pretty obvious they aren’t listening to us.
My theory, and I pray that I’m wrong, is that a few years down the road, this issue will come front and center again, and that we will ultimately pay higher taxes than we would have now. Washington needs to let our taxes increase. It may hurt now, but just like establishing and sticking to a budget, it hurts at first. Every fiscally responsible person knows you need to sacrifice first to enjoy later. It’s the same on larger scales as well. I’m just afraid of how much we’ll have to sacrifice to pay down our bulging deficits.
Would you be willing to pay more taxes if it meant getting our country back on fiscally stable ground?