About This Series
Barack Obama's first term as president begins four Tuesdays from today. On every Tuesday between now and his inauguration, this series will look at a particular issue and expectations for Obama's first term.
Dec. 30: Health Care
MONROE - President-elect Barack Obama promised to cut taxes for 95 percent of workers, about 150 million workers.
Obama's plan is, in effect, a net tax cut, which would reduce revenues to about 18 percent of the gross domestic product.
But Obama's proposed off-sets for the cuts could mean higher taxes and capital gains taxes for farmers, according to one certified public accountant in Monroe.
"Capital gains affect not only the wealthy, but a lot of farmers," CPA Fred Koster, of Reffue, Pas, Jacobson and Koster in Monroe, said.
"Right now, if a married couple makes $65,000, they wouldn't pay any capital gains tax," he said.
They would, however, pay regular income tax, with 10 percent on the first $16,000 and 15 percent on the remaining.
The new 2008 capital gains tax break went to investors in the 10 and 15 percent tax brackets.
Generally, tax rates on net capital gains are lower than income tax rates. In 2007, the maximum capital gains rates were 5, 15, 25 or 28 percent, for investors in the highest four tax brackets.
During his campaign, Obama talked of increasing capital gains taxes to not more than 28 percent. His plan shows specifically raising the 15 percent bracket to 20 percent on families making over $250,000.
Families under $250,000 would continue to pay the present rates.
"That affects all farmers in the nation," Koster said. "Cull cows are capital gains.
"They don't think about those things," he said about the tax plan preparers.
Farmers are also taxed on capital gains when they sell their farms.
"That's about 28 percent, or 20 to 28 percent," Koster said.
The rates differ too depending upon whether one is selling real estate or small business stock.
"That's the problem. A farmer works his whole life on a farm and then he sells it, and now he pays twice as much," Koster said.
In addition, Obama is planning to cut federal spending, partially by limiting farm subsidies.
With Obama in the White House and Democrats in effect controlling the House and Senate, Koster has little hope for farmers getting a break.
So what should a farmer do?
"Keep farming for the rest of his life?" Koster suggested.
But death, too, leads to taxes.
With taxes imposed on estates starting at values of about $3.5 million, 95 percent of people don't end up with estate taxes, Koster said.
The estate value was be increased from $2 million to $3.5 million in 2009, and then the tax repealed in 2010 - only due to come back in 2011 on a reduced $1 million value.
"(Obama) talked about freezing it at $2 million or even $3.5 million, but then only partially," Koster said. "Let's say, if I passed a way with an estate of $2 million, then the extra 1.5 could be transferred to my wife. She could then have $5 million before estate taxes have to be paid."
"The amounts would be double for married couples, and you wouldn't have to worry about who had title to what," he said.
Obama's 45 percent tax on estates in excess of $7 million per couple is expected to affect 0.3 percent of estates.
Obama's plan would reduce taxes for low- and moderate-income families, not by reduced tax rates, but essentially by increasing or extending tax credits for child and dependent care, college education, mortgage interest, earned income, and purchases of energy efficient products.
In addition, the child care, mortgage and college tax credits will be refundable, meaning tax filers will receive the money even if they owe no taxes.
Obama will extend the 10 percent tax bracket, due to expire in 2010, and retain the 15, 25, and 28 percent brackets.
He also plans to eliminate income taxes for seniors making less that $50,000, releasing seven million seniors, with an average savings of $1,400 each, from the tax rolls.
Under Obama's plan for all tax credits, 27 million seniors are not expected to file an income tax.
Obama's plan would reduce revenue to about 18 percent of the gross domestic product.
To help pay for the cuts and credits, Obama is calling for increased rates for the wealthiest 2 percent of families. Obama will allow the top two tax rates (now at 33 and 35 percent) to return to their 1993 rates of 36 and 39.6 percent.
The top 1 percent of households would see their average tax rate increase from 21 to 24 percent.
Obama also would allow personal exemptions and deductions to be phased out for those with income over $250,000. Those people will likely see also an end to the Social Security payroll tax cap. The Social security cap is currently set at $102,000.
Thus, these individuals will face a tax rate of 15.65 percent from payroll taxes and the top income tax rate of 39.6 percent for a combined top rate of over 55 percent on each additional dollar earned.
Other tax leaks stops proposed include shoring up off-shore tax havens and tax shelter abuses and special interest corporate loopholes.
As a result, some big U.S. companies are already reincorporating from Bermuda and the Cayman Islands to Switzerland. Switzerland has a corporate income tax, but does not impose it on overseas subsidiaries.
With the recaptured revenues from tax leak stops, Obama plans to lower corporate tax rates for companies that expand or start operations in the United States.
Obama wants to cut capital gains taxes for investors in small and start up firms.
But for people earning over $250,000, capital gains and dividend tax rates will climb on average from 15 percent to 20 percent. Dividends would no longer be taxed as ordinary income through the progressive tax brackets.
Obama's plan is, in effect, a net tax cut, which would reduce revenues to about 18 percent of the gross domestic product.
But Obama's proposed off-sets for the cuts could mean higher taxes and capital gains taxes for farmers, according to one certified public accountant in Monroe.
"Capital gains affect not only the wealthy, but a lot of farmers," CPA Fred Koster, of Reffue, Pas, Jacobson and Koster in Monroe, said.
"Right now, if a married couple makes $65,000, they wouldn't pay any capital gains tax," he said.
They would, however, pay regular income tax, with 10 percent on the first $16,000 and 15 percent on the remaining.
The new 2008 capital gains tax break went to investors in the 10 and 15 percent tax brackets.
Generally, tax rates on net capital gains are lower than income tax rates. In 2007, the maximum capital gains rates were 5, 15, 25 or 28 percent, for investors in the highest four tax brackets.
During his campaign, Obama talked of increasing capital gains taxes to not more than 28 percent. His plan shows specifically raising the 15 percent bracket to 20 percent on families making over $250,000.
Families under $250,000 would continue to pay the present rates.
"That affects all farmers in the nation," Koster said. "Cull cows are capital gains.
"They don't think about those things," he said about the tax plan preparers.
Farmers are also taxed on capital gains when they sell their farms.
"That's about 28 percent, or 20 to 28 percent," Koster said.
The rates differ too depending upon whether one is selling real estate or small business stock.
"That's the problem. A farmer works his whole life on a farm and then he sells it, and now he pays twice as much," Koster said.
In addition, Obama is planning to cut federal spending, partially by limiting farm subsidies.
With Obama in the White House and Democrats in effect controlling the House and Senate, Koster has little hope for farmers getting a break.
So what should a farmer do?
"Keep farming for the rest of his life?" Koster suggested.
But death, too, leads to taxes.
With taxes imposed on estates starting at values of about $3.5 million, 95 percent of people don't end up with estate taxes, Koster said.
The estate value was be increased from $2 million to $3.5 million in 2009, and then the tax repealed in 2010 - only due to come back in 2011 on a reduced $1 million value.
"(Obama) talked about freezing it at $2 million or even $3.5 million, but then only partially," Koster said. "Let's say, if I passed a way with an estate of $2 million, then the extra 1.5 could be transferred to my wife. She could then have $5 million before estate taxes have to be paid."
"The amounts would be double for married couples, and you wouldn't have to worry about who had title to what," he said.
Obama's 45 percent tax on estates in excess of $7 million per couple is expected to affect 0.3 percent of estates.
Obama's plan would reduce taxes for low- and moderate-income families, not by reduced tax rates, but essentially by increasing or extending tax credits for child and dependent care, college education, mortgage interest, earned income, and purchases of energy efficient products.
In addition, the child care, mortgage and college tax credits will be refundable, meaning tax filers will receive the money even if they owe no taxes.
Obama will extend the 10 percent tax bracket, due to expire in 2010, and retain the 15, 25, and 28 percent brackets.
He also plans to eliminate income taxes for seniors making less that $50,000, releasing seven million seniors, with an average savings of $1,400 each, from the tax rolls.
Under Obama's plan for all tax credits, 27 million seniors are not expected to file an income tax.
Obama's plan would reduce revenue to about 18 percent of the gross domestic product.
To help pay for the cuts and credits, Obama is calling for increased rates for the wealthiest 2 percent of families. Obama will allow the top two tax rates (now at 33 and 35 percent) to return to their 1993 rates of 36 and 39.6 percent.
The top 1 percent of households would see their average tax rate increase from 21 to 24 percent.
Obama also would allow personal exemptions and deductions to be phased out for those with income over $250,000. Those people will likely see also an end to the Social Security payroll tax cap. The Social security cap is currently set at $102,000.
Thus, these individuals will face a tax rate of 15.65 percent from payroll taxes and the top income tax rate of 39.6 percent for a combined top rate of over 55 percent on each additional dollar earned.
Other tax leaks stops proposed include shoring up off-shore tax havens and tax shelter abuses and special interest corporate loopholes.
As a result, some big U.S. companies are already reincorporating from Bermuda and the Cayman Islands to Switzerland. Switzerland has a corporate income tax, but does not impose it on overseas subsidiaries.
With the recaptured revenues from tax leak stops, Obama plans to lower corporate tax rates for companies that expand or start operations in the United States.
Obama wants to cut capital gains taxes for investors in small and start up firms.
But for people earning over $250,000, capital gains and dividend tax rates will climb on average from 15 percent to 20 percent. Dividends would no longer be taxed as ordinary income through the progressive tax brackets.