Income tax rates seem to change with every president. In the late 1990's President Clinton raised the highest rate to 39.6%. Then, President Bush lowered it to 35%. President Obama wants to raise the highest rate back up to to where it was in the nineties.
Truthfully, these changes mean little. The biggest change is going to occur for the middle class, netting the most rewards for the highest income-earning middle class citizens, whose joint income is between $70,000-80,000.
New Income Tax Rates for 2011
The 2011 income tax rates will be as follows:
- 15%: Single $0 – $35,020; Married $0 – 70,040
- 28%: Single $35,020 – $84,872; Married $70,040 – 141,419
- 31%: Single $84,872 – $177,006; Married $141,419 – 215,528
- 36%: Single $177,006 – $384,860; Married $215,528 – $384,860
- 39.6%: Over $384,860
Estate (or Death) Tax Rates in 2011
When 2010 ends so will estate tax exemptions. This is very controversial because this money has possibly been taxed already, but is now going to be subject to taxation again after the first $1,000,000.
When New York Yankees owner George Steinbrenner passed away on July 13, 2010, he left an estate worth roughly $1 billion. If this was going to be taxed, then his heirs would have to potentially sell the business they grew up learning to run in order to cover the tax burden.
The same would go for farmers with large amounts of land added to by past generations, grocers who built their brand into a chain, and any other very successful person who wishes to leave the fortune he earned and already paid taxes on (in many cases) to his family.
Are These Tax Rate Changes Beneficial Overall?
People who make more money tend to make a much bigger percentage of money overall, but those who can protect themselves will. Anyone, for example, making over $70,040, putting themselves into the 28% tax bracket, will happily make the adjustments they need to through:
- Tax write offs
- 401(k) and IRA contributions
- Claiming old investment losses
- Charitable donations
Such adjustments can drop them into the 15% tax bracket, bringing them huge tax returns. A married couple who earns $80,000 in 2011 can fall into a lower tax bracket easily with the following write offs:
- Daycare
- Mortgage interest
- Dental and medical co-pays
- Business overhead
- Retirement contributions
- Gifts to a relative
In the 28% tax bracket, this couple would have had $22,400 withheld from their pay. If their income after the above write offs are added in is $70,000, they will have overpaid the government by $11,900, meaning that they will receive more back than they used to fall into the lower tax bracket.
So, even if the $10,000 to get from $80,000 to $70,000 was only from tithes and offerings, the annual rate of return would be 119%, or $11,900, which is great for people in the higher end of the middle class and meaningless for the poor. The rich, meanwhile, will have to establish their estates in a way that their fortunes are left behind without being taxed along the way.
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