Some federal tax rates are scheduled to increase next year unless Congress takes action. Dr. Mike Walden, North Carolina Cooperative Extension economist, explains how people will be affected.
“Ten years ago in response to the 2001 recession, Congress slashed tax rates at the federal level. Primarily federal income tax, also estate taxes — but they put a fuse on that. They said, ‘We are going to have these reductions for 10 years, and then we will come back and revisit.’ Well, it is 10 years later, and these tax cuts are going to expire unless Congress takes action. So it is one of those things they have to actually do — something to cause the taxes to stay the same.
“And what we are talking about here … are the income tax rates we all pay. Those are scheduled to go up across the board, although the rates for higher income tax payers will go up more. Taxes on dividends, investment dividends will almost double. And then perhaps the biggest change will be the estate tax: Right now there is no federal estate tax. This tax, however, will go to 55 percent for estates over $1 million unless Congress takes action.
“A lot of discussion about what is going to happen: Some in Congress would like to push the expiration back. They say the economy doesn’t need tax cuts now. Others say, ‘Yes, we need more revenue in the federal government to reduce the debt and the deficit.’ And then there is a middle range, where some want to let the tax cuts expire for higher-income taxpayers but keep them for middle- and lower-income tax payers. We’ll see what happens.”