Guest column submitted by U.S. Senator Mike Crapo
Americans are once again facing the consequences of presidential and congressional inaction. If we fall off the fiscal cliff in the coming days, then every American taxpayer will face a tax increase. Here is a review of some of the most damaging potential tax increases.
Income tax rates will increase to as high as 39.6 percent if the fiscal cliff is not addressed. The Tax Foundation analyzed how the fiscal cliff would affect typical families across the country and included Boise, Coeur d'Alene, Idaho Falls, Lewiston and Pocatello in its review. According to the report, the average family of four living in these areas would face a nearly $3,000 tax hike. Additionally, the Congressional Research Service estimates that 69,663 more Idahoans, nearly eight times those currently affected, will face the Alternative Minimum Tax, which was originally targeted at wealthy taxpayers and has since ensnared many middle-income taxpayers.
The Death Tax, a frequently-changing tax that is especially burdensome for family farmers and small businesses, would jump from its current maximum rate of 35 percent, with a $5 million exemption, to 55 percent, with a $1 million exemption. This tax on income already taxed when first earned and the uncertainty around its levels and applicability make it difficult for families to plan, which can result in the sale of their farms or small businesses to pay the unfair burden when they lose a loved one. It penalizes productivity and should be permanently and fully eliminated.
If action is not taken, the percentage of Idaho farms subject to this penalty would increase from 3 percent to 18 percent. Nationwide, according to the Joint Committee on Taxation, there will be a 2,200 percent increase in the number of farmers and ranchers and a 900 percent increase in the number of small business owners who may be required to forfeit more than half of their assets to the federal government through the Death Tax.
Beyond income tax hikes and Death Tax hikes, seniors would also be among those most impacted by a more than doubling of taxes on dividends. The tax would jump from their current rate of 15 percent to 39 percent. This increase combined with Obamacare's 3.8 percent Medicare tax on passive income, including dividends, would nearly triple dividend tax rates for some Americans.
Many seniors rely on dividends for support during their retirement. The Tax Foundation analyzed Internal Revenue Service data and reported that the "lion's share of dividend income--48 percent--is earned by those over 65." The Joint Committee on Taxation found that approximately 9 million seniors will be affected by the loss of an average tax benefit of $1,700. In addition to the increased tax liability, seniors along with millions of other Americans will likely be impacted through a decrease in the value of their stocks held through mutual and pension funds, and 401(k) plans and other policies.
It is remarkable to think about how burdensome, complex, anti-growth and anti-competitive the tax code has become. Americans deserve immediate action to avoid the fiscal cliff and prevent the imminent tax hike, and we also deserve long-term comprehensive tax reform that provides Americans with some certainty. I will continue to press for tax reform as part of comprehensive plan to put our nation on a more competitive and productivity-friendly fiscal path.