PITTSBURGH (KDKA) — Whether to extend the Bush tax cuts into 2011 is a political dispute, but one that threatens to affect every taxpayer in America.
Democrats say that the wealthy have had a free ride for too long and are only getting richer — they don’t deserve a tax cut.
Republicans say those with the money spur the economy and need tax cuts to invest and create jobs.
If the two sides cannot reconcile before Jan. 1, then this is certain: Taxes will go up for everyone.
Tax accountants like Ron Kramer from Schneider Downs know the failure to compromise in Washington on the tax cuts carries a heavy price.
“In your first check, if they go into effect, you’re going to feel it because you will have a higher withholding rate on your first paycheck.”
In short, the IRS will take more out of your paycheck.
“Even a very low taxable income person is going to see an increase in their taxes come the first of the year,” notes Kramer.
That’s because all income tax rates go up if the Bush tax cuts expire.
Instead of six income tax brackets, from 10 percent to 35 percent, there will be five brackets — with higher tax rates from 15 percent to 39.6 percent.
And here’s more bad news for many retirees and families.
Dividend income from stocks and bonds will be taxed at your higher income tax rate, not a flat 15 percent — and the capital gains tax when you sell your stocks and bonds, will go from 15 percent to 20 percent –and for families with kids, the child tax credit drops from a $1,000 back down to $500.
Here’s how the changes could affect some taxpayers.
A single taxpayer earning $40,000 will pay $400 more in taxes; a single earning $80,000 will pay about $1,600 more; and a married couple earning $80,000 will pay $2,200 more in taxes.
So why no agreement to stop this?
“It seems to be a no-brainer, but it definitely is a political football,” says Kramer.
And it’s a football that is very much up in the air.
All sorts of compromises have been tossed about — from a one-or-two year extension for everyone to a continued tax cut for everyone who makes under a million bucks.
Tuesday, House Republican leader John Boehner said a small group of House and Senate Republicans and Democrats will meet with Obama administration officials to try to cut a deal.