Your Tax Question - 051

Dear John, What can be expected for the future of taxation? I mean, will the president follow through on his promise to soak the rich people who earn $250,000 a year? Just wondering, Mike

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Hi Mike,

Good question, in 2011 the Marginal Tax Rate (the tax paid on the last dollar of income) will be increased across the board. Without further legislation the lowest tax rates are set to expire in 2010 and then 2011 will see in increase of taxes on just about everyone.

In 2011 the 10% bracket for the lowest wage earners will revert to a higher 15%. What that means is that a single person with an AGI under $8,350 will owe $1,252.50 instead of $835.00 - an increase of 50%. For an individual earning from $8351.00 to $34,000 there is really no change of tax owed at 15%, but for the few taxpayers who have an AGI of $34,001 to $34,500. they will see a 40% reduction in their marginal tax rate: 25% to 15%.

The next rate will be a 12% increase on individuals who have an AGI of $34,500 to $83,600, then an increase of 10.7% on AGIs between $83,601 to $174,400, from there an increase of 9.1% on AGIs between $174,401 to $379,150, and finally for those AGIs over $379,150 and increase of 13.1%.

While I will admit that a 9.1% increase on $174,000 winds up being a heap more significant than a 50% increase on $34,500 it seems to me that taxpayers with the lesser AGIs have less wiggle room in their monthly budgets and they are the ones who really wind up getting "soaked". It's sort of like the Widow's Mite - giving out of one's poverty is more impressive than giving out of one's wealth.

I'm sorry Mike if I showed my political hand in this answer. But when all is said and done those are the numbers that are scheduled for 2011 unless Congress acts.

Best,

John