Q. What's being done to make sure the biggest dollar tax increase in history doesn't happen on January 1?
A. Congressional leaders have not made it a priority to prevent an across-the-board tax increase, including on small business where 70 percent of jobs are created. That's why I've joined an effort to say that other matters should be set aside until this major issue and long-overdue appropriations bills are tackled by lawmakers. Voters sent a clear-cut message in November that the priority in Washington should be the economy, jobs, and the national debt and government spending, and Washington ought to listen.
Q. How is it that tax increases would take effect without congressional action?
A. The 2001 and 2003 tax relief bills that I got through Congress when I chaired the Senate Finance Committee where tax legislation is handled are set to expire on December 31, 2010. If that happens, the pre-2001 rates will automatically go back into effect, causing families and individuals to face many types of tax increases, in addition to the marginal tax rates going up. So what needs to happen right now is not a tax cut, but legislative action to prevent a tax increase. Congress must act simply to make sure the tax burden remains the same. There was broad-based bipartisan support for the tax relief I got passed in 2001, and there's bipartisan support for a full extension of that tax relief today. Without action by Congress for a full extension, marginal tax rates on small business income will rise by 17 percent. According to the Joint Committee on Taxation, those rate hikes will affect half of flow-through small business income. The NFIB says that half of small business activity will be affected. Uncertainty about this tax increase has been a major drag on job creation, and there's broad agreement that small business is key to putting Americans back to work.
Q. What types of increases will there be, in addition to marginal rate increases?
A. The tax deduction for college tuition will go away, as will the expanded part of the tax deduction for interest on student loans. The 10-percent tax bracket for low-income workers will cease to exist, causing six million very low-income taxpayers who were removed from the tax rolls entirely, by the 2001 legislation, to be put back on. The tax-free treatment of employer-provided education assistance will go away. Currently, one million workers across America, who go to school at night or part-time, benefit from this tax relief.
In addition, the tax benefit for certain bonds to improve and build schools will go away. There will be a higher tax penalty for marriage; the child tax credit will be cut in half from $1,000 to $500; the refundable child tax credit for many people who don't pay taxes will go away entirely; savers, investors and seniors will pay higher taxes on dividends and capital gains; the adoption tax credit will be cut from $10,000 to $6,000, and fewer families will be eligible to use it; and the estate tax will return to a 55 percent tax rate and $1 million unified credit exemption amount.
Q. What does that mean for the average Iowan?
A. Without action, a family with an annual income of $50,000 and two kids will see an average tax increase of $2,155 in its tax bill next year. Iowans can check on their individual situation with a calculator posted at MyTaxBurden.org . There's a lot at stake for every taxpayer.