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State Representative Paul Anderson
100 Rev. Dr. Martin Luther King Jr. Blvd.
651-296-4317
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GUEST COLUMN
Federal tax increases on horizon
By Rep. Paul Anderson
Barring any last-minute action by Congress, a host of new or increased taxes will go into effect next year. I was surprised at the scope of the increases as they seem to have the combined effect of slowing business expansion and job growth, in addition to lowering personal income. A call to the Washington office of Sen. Amy Klobuchar and a visit with a tax researcher lent some current information on the situation. According to his sources, many of the education and child credits will probably be extended in a type of bill called a “tax extender.” Action to suspend or alter other tax increases would probably not occur until after the November elections.
However, until any of these actions are taken by Congress, numerous changes are scheduled to occur on Jan. 1, 2011. Several of them stem from the elimination of President Bush’s tax cuts enacted earlier in this decade. When put into effect, those cuts were supposed to be revenue-neutral, and to accomplish that they were set to expire in ’11. Well, that time is nearly here, and the downturn in our national economy hasn’t allowed tax revenue to increase as was forecast back then.
The first thing many could notice is higher personal income tax rates. The highest rate, now 35 percent, will go up to 39.6 percent. All other rates are scheduled to go up at least 3 percent, as well. The “marriage penalty”, which is a narrowing of brackets, will come back for couples filing jointly. The child tax credit, along with dependent care and adoption credits, are also slated to be cut. The capital gains tax rate will increase from 15 to 20 percent, while the dividend tax will jump from 15 percent all the way up to 39.6 percent.
Unless Congress acts, the estate tax will come back in 2011. This tax has been changing almost annually, and in this current year there is no estate tax. But next year, estates with values beginning at $1 million will be affected. This inheritance tax rate will range all the way up to 55 percent.
There are at least 20 new or increased taxes as a result of the new federal health care legislation passed this year. Already in effect is a tax on tanning salons. Another change coming will affect those who utilize Health Spending Accounts (HAS’s) or Flexible Spending Accounts (FSA’s) to purchase non-prescription, over-the-counter medications. No longer will pre-tax dollars be allowed for that expense.
Congress still has time to change the Alternative Minimum Tax (AMT), but if they don’t, the number of middle- and even low-income families affected by this tax will increase greatly. According to one source, the Tax Policy Center, the number of those affected by the AMT will jump from the current four million to more than 28 million.
Small business expensing, where a business could expense an equipment purchase up to $250,000 for tax purposes, will be cut back to $25,000. With this change, most of that expense will need to be more slowly written off or depreciated.
There is a concern that these tax increases, if allowed to go into effect, will cause the economy to slow down again next year. It’s also a reason why we need to look closely before enacting any tax increases on the state level.
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Rep. Anderson encourages constituents to contact his office with input regarding any state legislative issue. He can be reached on the web at www.house.mn/13A and via email at rep.paul.anderson@house.mn. To contact Anderson by phone, call (651) 296-4317. Mail can be sent to Rep. Paul Anderson, 239 State Office Building, 100 Rev. Dr. Martin Luther King Jr. Blvd., St. Paul, Minnesota 55155.
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