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August 23, 2006

# Impending Tax Increases

***If Congress Takes No Action....***

Unless Congress takes action, the following tax increases\* will
automatically occur:

**[In 2006:]{.underline}**

-   Taxpayers in states with no state income tax will not be allowed to
    deduct their sales taxes from their federal income tax.

> (Technically, this tax increase above has already occurred; however,
> since most tax returns for 2006 are not filed until the winter or
> spring of 2007, this increase can still be reversed without most
> taxpayers being affected by it.)

**[In 2007:]{.underline}**

-   The exemption for the Alternative Minimum Tax (AMT) will decrease
    from \$42,500 to \$33,750 for single filers and from \$62,550 to
    \$45,000 for married couples filing jointly.

**[In 2009:]{.underline}**

-   The standard deduction for couples as a percentage of the standard
    deduction for singles will decrease from 200% to 174%\--reinstating
    the marriage penalty.

-   The top end of the 15% marginal income tax bracket for couples as a
    percentage of the top end for singles will decrease from 200% to
    174%\--reinstating the marriage penalty.

**[In 2010:]{.underline}**

-   The section 179 small business expensing cap will decrease from
    \$100,000 to \$25,000, and the definition of a small business will
    decrease from \$400,000 to \$200,000.

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-   The child tax credit will decrease from \$1,000 to \$500.

**[In 2011:]{.underline}**

-   The marginal income tax rates will increase as follows:

> \--35% bracket will increase to 39.6%
>
> \--33% bracket will increase to 36%
>
> \--28% bracket will increase to 31%
>
> \--25% bracket will increase to 28%
>
> \--10% bracket will increase to 15%

-   The 10% marginal income tax bracket will contract from covering the
    first \$7,000 of income for singles and \$14,000 for joint filers to
    covering only the first \$6,000 of income for singles and \$12,000
    for joint filers.

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-   The personal capital gains rate will increase from 15% and 0% to 20%
    and 10%.

-   Dividends will no longer be taxed at the personal capital gains
    rates, thereby increasing the double taxation of dividends by as
    much as 62%.

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-   The annual education IRA contribution limit will decrease from
    \$2,000 to \$500.

-   The standard deduction for couples as a percentage of the standard
    deduction for singles will decrease from 174% to 167%\--further
    increasing the marriage penalty.

-   The top end of the 15% marginal income tax bracket for couples as a
    percentage of the top end for singles will decrease from 174% to
    167%\--further increasing the marriage penalty.

-   The estate tax using the "stepped up" basis will return with a 60%
    maximum rate (including surtax) and \$1 million exemption, after
    years of decreasing estate tax rates, increasing exemptions, and one
    year using the "carryover" basis to calculate the tax due.

\*This list is not exhaustive.

**Special thanks to Americans for Tax Reform.**

**RSC staff contact: Paul S. Teller, <paul.teller@mail.house.gov>, (202)
226-9718**