Taxes lowest since 1950?
Americans are paying less in federal taxes than they did under Bush, and taxes are taking the smallest share of GDP since Truman was president.
This article is by Stephen Ohlemacher of The Associated Press.
Taxes too high?
Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way.
And for the third straight year, American families and businesses will pay less in federal taxes than they did under former President George W. Bush, thanks to a weak economy and a growing number of tax breaks for the wealthy and poor alike.
Income tax payments this year will be nearly 13% lower than they were in 2008, the last full year of the Bush presidency. Corporate taxes will be lower by a third, according to projections by the nonpartisan Congressional Budget Office.
The poor economy is largely to blame, with corporate profits down and unemployment up. But so is a tax code that grows each year with new deductions, credits and exemptions. The result is that families making as much as $50,000 can avoid paying federal income taxes, if they have at least two dependent children. Low-income families can actually make a profit from the income tax, and the wealthy can significantly cut their payments.
"The current state of the tax code is simply indefensible," says Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "It is hemorrhaging revenue."
In the next few years, many can expect to pay more in taxes. Some increases were enacted as part of President Barack Obama's health care overhaul. And many states have raised taxes because -- unlike the federal government -- they have to balance their budgets each year. State tax receipts are projected to increase in all but seven states this year, according to the National Council of State Legislatures.
But in the third year of Obama's presidency, federal taxes are at historic lows. Tax receipts dropped sharply in 2009 as the economy sank into recession. They have since stabilized and are expected to grow by 3% this year. But federal tax revenues won't rebound to pre-recession levels until next year, according to CBO projections.
In the current budget year, federal tax receipts will be equal to 14.8% of the Gross Domestic Product, or GDP, the lowest level since Harry Truman was president. In Bush's last year in office, tax receipts were 17.5% of GDP, just below their 40-year average.
The lack of revenue, combined with big increases in spending, means the federal government will have to borrow 40 cents for every dollar it spends this year. The annual federal budget deficit is projected to reach a record $1.5 trillion.
Lawmakers from both political parties vow to tackle the nation's financial problems.
Republicans in Congress promise big spending cuts, and Obama says he wants to reshape corporate taxes, closing loopholes to pay for lower overall rates. Few in Washington, however, are calling for big tax increases, at least in the short term.
"America's tax system is clearly broken," Donald Marron, a former economic adviser to Bush, told the Senate Budget Committee at a recent hearing. "It fails at its most basic task, which, lest we forget, is raising enough money to pay for the federal government."
At the request of The Associated Press, The Tax Institute at H&R Block compared 2008 and 2010 tax bills for families at various income levels, showing how their taxes have changed since Obama took office. Taxpayers are filing their 2010 tax returns this spring, while 2008 was the last full year that Bush was president. The scenarios assume that each family had the same income, filing status and number of dependent children in both years.
Income tax rates remain unchanged. But many taxpayers are seeing their bills drop under Obama because of more generous tax credits for college students, working families, homebuyers and the working poor. Many of the changes were enacted as part of the big economic stimulus package passed in 2009.
Congress also extended Bush-era tax cuts through 2012. Lawmakers let Obama's Making Work Pay tax credit expire at the end of 2010, but they replaced it with a one-year cut in Social Security payroll taxes that is already showing up in workers' paychecks.
Paying more or less?
- A married couple with two young children and a combined income of $25,000 will pay no federal income taxes for 2010. Instead, they'll get a payment of $7,085 -- up from $6,700 in 2008. The larger payment comes mainly from a more generous Earned Income Tax Credit, which provides subsidies to the working poor. They will also get a $1,000-per-child tax credit. The example illustrates how complicated tax returns can be, even for low-income families, said Kathy Pickering, executive director of The Tax Institute at H&R Block.
- A married couple with two children, including one in college, and a combined income of $50,000 would pay no federal income taxes, instead getting a payment of $734 from the government this year. However, they did better in 2008 when they netted a $1,234 payment from the government. That's because Obama's Making Work Pay credit was worth less to them than the Bush-era economic stimulus payment they received in 2008.
- A single person making $50,000 while paying interest on a student loan would have a 2010 tax bill of $5,325 -- a $63 decrease from 2008. The difference is due to an inflation-based increase in the standard deduction and personal exemption.
- A married couple with two children, including one in college, with some modest investments and a combined income of $200,000 will see their federal income tax bill drop by $780, to $28,496. Their tax bill is lower than in 2008 largely because itemized deductions are no longer limited for high-income families.
- A rich couple with two kids in college, larger investments and a combined income of $1 million will see their taxes drop by $6,740, to $277,699 in 2010. Their tax bill is lower than in 2008 because they were able to defer a larger portion of their income to retirement accounts, and because itemized deductions are no longer limited for high-income families.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
More from MSN Money:
** Low-income families can actually make a profit from the income tax, ** Let's all scream *SOCIALISM*.
How do you get an Income Tax REFUND when you didn't pay any income taxes to begin with? You still used gov'ment services......roads, schools, parks, public utilities......you should help pay the bill.
When you are 20 years old with four children, living on welfare, food stamps, gov'ment housing, medicare, and your kids get a free breakfast and lunch at school......you don't deserve an INCOME TAX REFUND......because you are *in the red* before you even get started. The total dollar amount of all those *free gov'ment hand-ups* should get deducted from any REFUND that anyone is getting from their paid income taxes.
Suprise....America is bankrupt.....and here is one reason.....people getting refunds for money they never paid out in the first place. America needs a FLAT TAX....with NO deductions for any reason....no exception.
*You were paid X amount for working last year.....we have kept 4% of that total in the form of paycheck deductions. Thank you for being an American. Have a nice day.*
Specialty taxes targeted at specific products or services is complete BS for starters. Why should person #1 who's work uses more of one type of item get stuck paying higher sales taxes when #2 person's work uses large amounts of some other item which is taxed at a lower rate? That's crap. Gov'ment services like roads and public utilities do not cost more for person #1 to use; versus person #2, so why whould they pay different sales taxes?
The store where I work has a big problem with people stealing alcohol, given the current prices, taxes, and laws which govern what times of day and what days that we are able to sale alcohol.
Increase taxes on booze and even more people will be tempted to try and steal it. I believe purse snatching, charity donation bucket theft and vending machine vandalism......all in effort to get some free money to buy booze......would all see an increase in activity.
Gee, if the poor are making a profit and the wealthy are substantially reducing their payments, then that just leaves the middle class holding the bag..............
The Tax Code is a joke, but I can't even imagine how long it will take Congress to agree on those changes:
Democrats: Tax the rich, sell debt to China and give to the poor
Republicans: Don't tax at all, sell debt to China and give to the wealthy
The middle class gets the Shaft while the rest of America gets the GOLD.
Health insurance payments should be considered taxes under Obama since they are now mandatory (unless SCOTUS does the right thing and declares the law unconstitutional).
With the Feds articulating we are broke, it seems appropriate that everyone wants to get theirs ASA friggin P!
Like the market crash years ago. It's my money!!!!! and I want it now!!!!!!!!!!!
Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%
Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.
The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.
Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.
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