President Barack Obama Says He Didn't Raise Taxes Once, But He Did

In an interview with Bill O'Reilly, President Barack Obama said, "I didn't raise taxes once. I lowered taxes over the last two years." However, fact checkers were quick to point out that the President has in fact raised a few taxes including those levied on cigarettes as well as the tax implications of health care reform. Income taxes? Sure, those have not gone up, but as for other taxes… President Obama seems to have a selective memory.

From PolitiFact.com:

Looking at the whole statement, he's both right and wrong. For clarity's sake, we're going to take Obama's statement in two parts. Here, we'll look at his statement, "I didn't raise taxes once." In a separate report, we'll look at his statement, "I lowered taxes over the last two years."

The idea that Obama did not raise taxes is just plain wrong. He signed legislation raising taxes on cigarettes and other tobacco products soon after taking office; that money goes to pay for children's health insurance programs. The law went into effect in 2009. He also signed the health care law, which includes taxes on indoor tanning that went into effect last year. (Regular PolitiFact readers will remember our fact-check of reality TV star Snooki and her complaint about the new tax last year.)

The new health care law also includes a tax on people who decide not to have health insurance, as an incentive for them to get coverage. The tax phases in gradually, starting in 2014. By 2016, the tax would be $695 per uninsured person up to a maximum of three times that amount, or $2,085. The law includes exemptions for people who can't find affordable insurance, and a few other special circumstances.

More significantly, the health care law includes new taxes on the wealthy, starting in 2013. Individuals who make more than $200,000 and couples that make more than $250,000 will see additional Medicare taxes of 0.9 percent. They will also, for the first time, have to pay Medicare taxes on their investment income at a 3.8 percent rate. (Current law is that all workers and employers split a 2.9 percent Medicare tax; the self-employed pay all of it.)

Read more here

Tax Hikes to Expect in 2011

As we wait for Congress to take up a handful of tax and financial issues, taxpayers across the country are wondering what tax laws will change in 2011. A handful of tax cuts and incentives are scheduled to expire at the end of the year, and unless Congress takes action Americans are going to pay more taxes in 2011. These hikes are going to affect more than just taxpayers making over $200,000 per year. There are dozens of tax changes on the horizon that could hit families of all kinds of different income levels. To help readers of my blog prepare for the potential changes, I have put together the following list of tax hikes to expect in the coming year.

Income Tax Rates

Depending on what action Congress takes on the Bush tax cuts, income tax rates could increase significantly in 2011. President Obama has urged congress to only allow the cuts to expire for taxpayers making over $200,000. However, Congress must decide the fate of these tax rates and unless they pass legislation in the next few months, tax rates will increase for all taxpayers. For more information on the impact of the Bush tax cuts check out this blog entry I posted a few weeks ago.

Estate Tax

As many of you already know, the estate tax expired at the end of last year and was not extended. Therefore taxpayers who inherited a sizeable amount of money this year did not have to pay the standard estate tax. Next year the tax is scheduled to be reinstated at a higher rate (55%). It will also target taxpayers receiving smaller estates. Additionally, if Congress does take up the issue they might instate a retroactive tax that could affect Americans who thought they were able to avoid the estate tax.

Dividends

Qualified dividends are currently taxed at 15% because of the Bush tax cuts. However, if the cuts are allowed to expire, that rate will increase to nearly 40% for some taxpayers. This could represent a significant increase to taxpayers who rely on income from dividends.

Capital Gains

Another area the Bush tax cuts would impact is the capital gains rates. Depending on how Congress acts, the rates could rise to 20% in 2011. The increase is likely to only hit high-income taxpayers, and if you are worried about the hike then you might want to consider selling off some of your gains in 2010. However, you should always speak with a financial advisor to determine the most advantageous strategy.

Sin Taxes

Lots of taxpayers have seen drastic increases on cigarette taxes over the past year as local government agencies seek sources of additional revenue. However, these are not the only sin taxes that have increased. As part of the health care reform bill an indoor tanning tax was instituted, and going in to 2011 you can expect to see many more sin tax increases, especially at state and local levels.

Marriage Penalty

Married taxpayers should be concerned about another looming tax hike in 2011. Unless Congress addresses the issue, the "marriage penalty" will return next year, which has significant implications on couples that have significantly different income levels. Luckily, some of these taxpayers might be able to avoid the penalty by filing separately.

Deduction Caps

Although not a direct tax hike, the new deduction caps looming in 2011 will force many high-income taxpayers to pay more to Uncle Sam. President Obama has expressed interest in limiting the value of deductions at 28%, but has faced significant opposition. Many charitable groups have spoken out against this tax change, with fear that it will result in fewer donations from Americans.

Business Taxes

Small and large businesses should also expect tax increases in the next year. There are going to be higher SECA taxes for owners of S firms and partnerships, restrictions on worker classifications, and an elimination of the deduction for domestic production.

Audits

The last thing that any taxpayer wants to hear is that the likelihood of an IRS audit will increase in the next year. However, the White House has been pushing the IRS to crackdown on both small businesses and individuals. Earlier in the year Treasury Secretary Timothy F. Geithner even asked Congress for additional funds to support the increased collection efforts.

Fact-Checking the Tax Provisions in the 'Pledge to America'

FactCheck.org has published a report on the Republican Party’s Pledge to America and has criticized a number of "dubious factual claims." Check out their commentary on a number of tax provisions below, courtesy of the Tax Prof.

Pledge, page 14: Unless action is taken, a $3.8 trillion tax hike will go into effect on January 1, 2011 that will unravel these policies. A family of four with a household income of $50,000 a year will have to pay $2,900 more in taxes in 2011.

Fact: True, but misleading. What the Pledge fails to note is that Obama and Democratic leaders in Congress have consistently promised to extend the Bush tax cuts for all families making less than $250,000 a year, and singles making less than $200,000. It’s true that hasn’t happened yet, but the reason is that several House and Senate Democrats are agitating to extend the cuts for everybody, even those with the highest incomes.

Congress might yet fail to extend most or all the cuts before they are scheduled to expire next year. As we reported in a Sept. 3 Ask FactCheck itemon this issue, there’s always a possibility that Congress will grind to a halt in a stalemate. And sure enough, on Sept. 23 Senate Democrats announced they would put off any vote on extending the cuts until after the election. A spokesman for Democratic leader Harry Reid of Nevada said, "Democrats believe we must permanently extend tax cuts for the middle-class before they expire at the end of the year, and we will."

Pledge, page 14: [Obama] also wants to raise taxes on roughly half of small business income in America.

Fact: This is an exaggeration. Republicans are equating "net positive business income" reported on individual returns with "small business income," which isn’t correct. They rely on a report from the nonpartisan staff of the Joint Committee on Taxation (p. 12), which estimated that about 3% of taxpayers who have any business income on their personal returns would see a tax increase under Obama’s proposal, and that those 750,000 taxpayers account for about half of all the business income reported.

But some of that income is from big businesses raking in tens of millions of dollars a year. The JCT stated quite clearly that "These figures for net positive business income do not imply that all of the income is from entities that might be considered ’small.’" Some in fact are quite large, and those big businesses account for a good chunk of that income.

The JCT said: "For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million."

Republicans do have a point here. Many small businesses and some large fraction of small-business income will be adversely impacted by raising the top rate on individual taxpayers.

The fact is, though, that the JCT couldn’t estimate how much of the total business income was accounted for by "small" businesses, or how many of the 750,000 individuals affected own "small" busineses. What we do know is that a good deal less than half the small business income, and something less than three percent of small business owners, would be subject to higher taxes.

Pledge, page 28: Roughly 16,500 IRS auditors, agents, and other employees may be needed to collect the hundreds of billions of dollars in new taxes levied on the American people by the new health care law.

Fact: This is simply not true. As we reported last March, this figure "stems from a partisan analysis based on guesswork and false assumptions, and compounded by outright misrepresentation." For an eye-opening account of how Republican staff members of the House Ways and Means committee came up with this inflated figure, see our Ask FactCheck item posted March 30. Most of what the IRS will do under the law is hand out tax credits, not collect penalties.

Worries Over Tax Hikes Coloring Business Decisions

From the Wall Street Journal:

The uncertainty over looming tax increases is starting to affect both investing and corporate decision-making.

The economy remains the biggest factor in many investors' and businesses' decisions. But worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as another important one.

Stock prices of utilities, for example, recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year, several analysts say. Some companies are pumping up dividend payments this year to beat the possible 2011 tax increase, and their shares have rallied.

Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment. And many advisers are encouraging well-to-do clients to sell appreciated assets to avoid higher capital-gains taxes.

Congress hasn't decided how to address the tax cuts from the George W. Bush administration, which are set to expire Dec. 31. President Barack Obama proposes to allow taxes on dividends and capital gains to rise to 20% from the current 15% for higher earners, defined as families with incomes of more than $250,000.

But many congressional Democrats want to let dividend tax rates, along with ordinary income rates, rise next year for higher earners to as much as 39.6%.

Worries Over Tax Hikes Coloring Business Decisions

From the Wall Street Journal:

The uncertainty over looming tax increases is starting to affect both investing and corporate decision-making.

The economy remains the biggest factor in many investors' and businesses' decisions. But worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as another important one.

Stock prices of utilities, for example, recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year, several analysts say. Some companies are pumping up dividend payments this year to beat the possible 2011 tax increase, and their shares have rallied.

Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment. And many advisers are encouraging well-to-do clients to sell appreciated assets to avoid higher capital-gains taxes.

Congress hasn't decided how to address the tax cuts from the George W. Bush administration, which are set to expire Dec. 31. President Barack Obama proposes to allow taxes on dividends and capital gains to rise to 20% from the current 15% for higher earners, defined as families with incomes of more than $250,000.

The Tax Hike Nobody's Talking About

The media has placed a lot of attention on a few minor tax changes, such as the new tanning tax. However, little focus has been put on a major tax hike that is about to occur. Unless Congress takes immediate action, the Marking Work Pay credit is due to expire; if it does expire, working taxpayers across the country will have more money withheld from their paychecks.

The credit, introduced last year as part of the government's stimulus package, boosts paychecks by up to $400 for single filers and up to $800 for joint filers, by reducing the amount of tax withheld from each paycheck.

But unlike those cuts, which were largely viewed as a benefit for wealthier Americans, the Making Work Pay credit is designed exclusively as a middle-class benefit, and will affect a wider base of taxpayers.

Continue reading at CNN.com…

Recent State Taxing Trends you Should Know About

As numerous state and local government agencies struggle with their budgets, many have taken to new taxes, or tax increases to makeup for lost revenue. Whenever a state is able to collect a decent amount of funds because of a new tax law change, other government agencies are quick to notice and enact a similar tax increase of their own. To help the readers of my blog stay informed on taxes they might have to pay down the road, I have compiled the following list of recent state taxing trends to be aware of.

Cigarette Tax Hikes

Taxes levied on cigarettes and other tobacco products are not new, but recently a handful of states have been increasing their cigarette tax rates. As I explained in this blog entry last month, New York has the highest tax on cigarettes and with recent increases the state levies an estimated $4.35 on every pack. Additionally, other states have been increasing tobacco taxes as an easy source of revenue. South Carolina – a state with a long history of tobacco farming – has even increased the taxes on cigarettes from 7 cents, to 50 cents per pack. The governor vetoed the tax law, but legislators had enough votes to override the veto. As local government agencies continue to look for ways to increase revenue, you can expect to see more cigarette tax increases over the next few years.

Other Sin Taxes

Taxes levied on cigarettes and other tobacco products, commonly referred to as “sin taxes,” also include taxes on other products that legislators consider bad for your health such as alcohol or sugary beverages. In addition to tobacco taxes, you are likely going to see other sin tax increases. The federal government has helped start this trend with their new tanning tax, and the state of NY already considered a soda tax (although lobbyists successfully defeated this new tax).

Amnesty Programs

Although not a new tax increase, local amnesty programs are something you should be aware of. The city of Philadelphia recently executed an unpaid tax amnesty program, where delinquent taxpayers could pay the taxes they owed, and only half of the interest that would normally be due. Philadelphia’s program was extremely successful – estimates predict around $25 million in additional revenue for the city – and because of its success you can bet that other state and local taxing agencies will launch amnesty programs of their own.

Digital, Non-Tangible Property

One of the largest trends in state sales tax laws is likely to be on digital, non-tangible property. Historically, excise taxes are only levied on tangible property, but as the need for tangible products diminishes, local governments are expected to begin charging a tax on electronic transmissions. Therefore, when you go to purchase a game, mobile app, or even an Mp3 on iTunes, you might have to pay a local sales tax. Most states have sales tax laws that were written long before today’s “digital age,” and legislators are looking for ways to generate revenue from digital sales.

The “Amazon Tax”

In 2008 the state of New York implemented an “Amazon Tax,” which targeted out-of-state retailers such as Amazon.com and Overstock.com. Both popular online retailers actually challenged the tax law, but the courts sided with New York. The result was a tax on in-state businesses that show ads linking to a retailer’s site, and has supposedly generated additional revenue for the state. As such, other states including California, Connecticut, Maryland, North Carolina, and Tennessee are considering similar tax laws.

Democrats propose tax hikes in response to Schwarzenegger's fiscal plan

Party leaders have been getting together in response to California Governor Arnold Schwarzenegger’s proposed fiscal plan, which I wrote about here. Legislators agree that there needs to be a way to increase revenue to close the $19.1 billion deficit, but how that will be done is always the argument.

Governor Arnold Schwarzenegger’s “spending blueprint” proposes eliminating California’s welfare program and cutting other state services. Democrats are responding by making a proposal of their own: generate billions in the form of new taxes.

The democrats’ detailed $5 billion plan calls for taxing oil companies, borrowing from the state’s recyclable bottles and can deposits, delaying corporate tax breaks, increasing personal income taxes, increasing vehicle license fees and raising taxes on alcohol. In order to pass, the plan would require at least some Republican votes. Republican legislators are expected to reject these tax hikes.

According to the Los Angeles Times, Schwarzenegger's office immediately dismissed the Democrats' proposals. "It is unfortunate that the Democrats' first instinct is to raise taxes," said Schwarzenegger spokesman Aaron McLear.

Read more about the proposed plans here.

World’s Wealthy Tapped for Cash as Governments Tax High Incomes

From Bloomberg.com:

From Athens to Olympia, Washington, governments made poorer by the recession are looking to higher taxes on the rich for cash.

Spain’s wealthiest should be tapped to help close the euro region’s third-largest budget deficit, Prime Minister Jose Luis Rodriguez Zapatero said yesterday. The U.K. has boosted taxes on high earners and French and Swedish politicians are calling for the same. The top U.S. tax rate is set to rise in 2011, while at least 14 states have lifted rates or are considering increases.

“There’s a real move to get at whatever revenue you can get at without being so broad as to get the populace all up in arms,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington. “You go where the money is.”

The longest recession since the Great Depression has deprived governments of revenue, opening gaps between what they take in and what they must spend to sustain their economies. Budget deficits in advanced economies have swollen more than eight-fold since 2007 to about 9 percent of gross domestic product, the International Monetary Fund said.

U.S. states are projected to confront $124 billion in cumulative budget gaps in the next two fiscal years, according to the Pew Center on the States, confronting politicians with the need to raise revenue and cut spending to balance budgets.

Short-Run Tax Hikes Being Used to Fill Gaps

From USAToday.com:

Many states and cities coping with hard times are asking residents to open their wallets for the latest fashion in taxation — the temporary tax.

Governments are raising taxes for a specific period of time and promising the hikes will go away when good times return.

Some big temporary taxes:

• Arizona voters decide today whether to approve a three-year sales-tax hike. Republican Gov. Jan Brewer pushed to raise the sales tax from 5.6% to 6.6%, dedicating two-thirds of the new money for schools.

• Kansas hikes its sales tax July 1 from 5.3% to 6.3% for three years. The tax is designed to prevent cuts in education and social programs.

• Mobile, Ala., boosts its sales tax by 1 cent for 16 months starting June 1. The combined state and local rate will be 10%. Goal: avoid laying off police and firefighters.

• A half-dozen other states are eyeing temporary taxes. So are many cities and counties, including King County, Wash., which includes Seattle.

Californians Divided Over Paying Higher Taxes to Prevent Public Education Cuts

The Public Policy Institute of California conducted a poll earlier this week to gauge how taxpayers in the state felt about paying higher taxes to prevent major cuts to public education. According to the California Independent Voter Network although Californians are concerned about cuts to education, they remain wary of paying higher taxes to fund what is needed to prevent those cuts. Check out a section of their analysis of the pool below.

Californians today are more likely to believe that funding for their local schools is inadequate, and parents who send their children to public schools believe that the state budget cuts have had a big effect on their children's schools. Among ethnic groups, Blacks and Whites are far more likely to believe that the quality of education is a problem as compared to Asians and Hispanics. Blacks and Hispanics are much more likely than Whites to be worried about the quality of education.

Californians also want education to be protected from spending cuts and believe gubernatorial candidates’ positions on education are important. Despite this all of these concerns, Californians are split on whether to pay higher taxes to restore the cuts.

Here are some highlights from the poll:

62 percent believe there is not enough state funding going to their public schools, a 12 point increase since April 2009, while 26 percent believe there is just enough, 6 percent more than enough.

Continue reading at CAIVN.org…

Should Obama Embrace the Bush Tax Cuts to Revive His Presidency?

In a new opinion piece for the Wall Street Journal, Holman Jenkin suggests that if Obama wants to revive his Presidency then he should lead a coalition against untimely tax hikes. A number of Democrats in the House of Representatives are starting to call for an extension of the Bush tax cuts, and Jenkins suggests that showing his support for the group could be a “win” for Obama and the economy. You can find a section of the opinion article below.

That the economy doesn't need tax hikes on job creators and investors hanging over it right now should be obvious, so let's skip to the political benefits for the president. Leading a coalition of Republicans and moderate Democrats to ward off the danger wouldn't just be "bipartisan," and serve as a writ of divorce from the Pelosi left, but it also would show President Obama's leadership being tempered by realism, to do what is doable.

President Obama would have to withstand the hot breath of MoveOn types who'd castigate him over what Democrats lazily deride as tax cuts for the rich. He'd have to withstand a simple-minded media dwelling on the fact that bankers would keep a bigger share of their bonuses.

He'd pay a price for his unwise rhetoric of late, not to mention his short-sighted political decision to run against the bank bailout that his own administration authored and that will be remembered as his finest hour. (The rejoinder for Republicans has been just too easy: Tim Geithner.)

Continued at WSJ.com…

Budget-Strapped States Avoid the Word “Taxes”

From Washington Times.com:

Faced with severe budget shortfalls after a steep economic recession, state legislatures and governors are trying to raise money without raising taxes — at least not technically.

A fee hike, an increased penalty or fine, the elimination of a tax exemption — none of these technically counts as a tax increase, as far as many state lawmakers are concerned. Fiscal conservatives argue that a tax hikes are exactly what they are, but their arguments are likely to fall on deaf ears for legislators and governors wrestling with some of the worst budget deficits since the Great Depression.

"There's a certain American antipathy to raising taxes, so even if these are tax increases, there's an incentive to call them something else," said Joseph Henchman, director of state projects at the conservative Tax Foundation. "It's a trend we always see, but it's certainly going to be one that's stronger this year."

The National Conference of State Legislatures found that 35 states and Puerto Rico are facing deficits for fiscal year 2011, despite the Obama administration's $787 billion recovery package, which pumped tens of billions of dollars into state coffers last year.

Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'

Earlier in the week, David Gamage of UC-Berkeley published a new paper on how state governments can address their recession related budget problems. You can find a section of the abstract below, courtesy of Tax Prof, or download the full PDF at Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'.

Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States should raise their tax rates during economic downturns and lower them during periods of growth. On the level of institutional-design policy, the key question is how we define terms like “tax cuts” and “tax hikes.” By adopting a new baseline for defining these terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than (more harmful) spending fluctuations.

States Face More Cutbacks and Tax Hikes

While some experts assert the United States’s economy is improving, state and local governments are reportedly still facing tax increases, setbacks, and budget problems. According to preliminary reports, state agencies in this country will likely face a combined deficit of at least $51 billion next year, which is significantly higher than many had expected.

"These are the worst numbers we've ever seen in the decades of putting together this report," said Scott Pattison, executive director of the National Association of State Budget Officers. "States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government."

The full report, which will be released in December, is jointly compiled by the budget officers' group and the National Governors Association. Fiscal year 2010 started on July 1 in 46 states.

Some $135 billion in federal stimulus funding helped states avoid even more draconian cuts, particularly to health services and education. But it was not enough to put the states back on solid footing.

States typically continue to suffer for two years after a national recession is declared over. Many economists predict that the current downturn ended last quarter, when the gross domestic product grew at a 3.5% annual rate.

Continue reading at CNN.com…

California Boosts Income Tax Collection by 10 Percent

From the Associated Press:

California wage earners will soon notice a little less money in their paychecks.

Starting Monday, employers in the cash-strapped state are required to withhold 10 percent more in state income taxes to help ease the budget problems.

It's part of a plan to artificially inflate state revenue by $1.7 billion through next June.

Brenda Voet, a spokeswoman for the state Franchise Tax Board, says it's technically not a tax increase since workers will get their money back after April 15.

A single wage earner making $51,000 a year with no dependents will get about $4 less a week.

California to Withhold a Bigger Chunk of Paychecks

From LA Times.com:

Reporting from Los Angeles and Sacramento - Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners -- holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.

Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

But with rising gas costs, depressed home prices and double-digit unemployment, the state's added reach into residents' regular paycheck isn't sitting well with many.

"The state's suddenly slapping people upside the head," said Mack Reed, 50, of Silver Lake. "It's appalling how brash that is."

Federal Income Tax Increases Throughout U.S. History

With all the attention being given to Obama’s health care reform campaign, and Congress’ bill that includes a hefty tax increase to pay for it, I began thinking about tax rates and increases throughout American history. To put the pending tax rate changes into perspective for all of my readers, I have put together the following outline of tax increases in U.S. history.

The Revenue Act of 1916

Nearly a hundred years ago, one of the earliest major tax increases in America was under the Revenue Act of 1916. Prior to the act, only 2% of citizens paid income taxes, and those who did have to pay only paid a mere 1-5%. In order to pay for war expenses, and stabilize the U.S. economy, the new act raised the lowest tax rates by 1%, and the top tax rate by a staggering 15%. However, these increases were not exclusive to income taxes, as rates levied on businesses and estates were also raised. Although experts at the time predicted these taxes would be enough, the First World War quickly became more costly than expected.

The War Revenue Act

Just one year later, in 1917 the properly named War Revenue Act increased taxes yet again. As part of the act, the cutoff for the U.S.’s highest income tax rate went from $1.5 million to only $40,000. Keep in mind that this was “1917” dollars, and citizens making $40,000 per year would be considered wealthy by today’s standards. Only a few months after the War Revenue Act passed, another act was passed to collect additional revenue from taxpayers. All in all, personal income taxes reportedly paid for over a third of all the Word War I related expenses the U.S. incurred.

The Great Depression

As we all know, the 1920’s were a great time in America. The economy was great, tax rates were low, and Federal revenue was flowing. That is until the stock market crash of 1929, which triggered the start of the great depression. Between 1932 and 1936, taxes were increased several times to support economic recovery. By 1937 the lowest income tax rate in the country was 4% and the highest was an astounding 79%. Comparatively, the highest 2009 tax Federal income tax rate is only 35%.

The "Victory" Tax

Often referred to as the biggest tax increase in more than 20 years, the US Revenue Act of 1942 – also known as the "victory" tax – was more than just one little tax increase. Although it's name may lead you to think the act was meant to bump the economy, the money was actually used to prepare for World War II.

Another reason this particular act was so upsetting to many was because up until it passed, only about 5% of Americans had to pay Federal income taxes. However after it was enacted, the act raised the percentage of Americans paying income taxes to 75%. In addition to raising income taxes, the act also increased corporate tax rates by nearly 10%, decreased personal exemptions from $1,500 to $1,200, and decreased dependent exemptions from $400 to $350.

The Revenue Act of 1951

Only 9 years after the last large tax increase bill, the Revenue Act of 1951 was introduced to generate even more Federal revenue. However, although both personal and corporate tax rates were raised by as much as 5%, the government’s total tax revenue actually dropped in the years following the Revenue Act of 1951.

The Tax Equity and Fiscal Responsibility Act of 1982

In 1981, the Economy Recovery Act became law and contained some of the biggest tax cuts of modern American history. However, just a year later, Congress passed the Tax Equity and Fiscal Responsibility Act, which raised the federal unemployment base wage and the FUTA tax rate. The act also setup new excise taxes on airports, airways, telephones and cigarettes. Finally, the act also reduced the limit on tax-free contributions to defined-contribution pension plans by $15,475, and reduced limits on benefits from a defined-benefit plan from $136,425 to $90,000.

The Omnibus Budget Reconciliation Act of 1993

Signed into law by President Bill Clinton, the highly controversial Omnibus Budget Reconciliation Act of 1993 drastically increased personal income tax rates. Just three years prior, the Omnibus Budget Reconciliation Act of 1990 had increased the top U.S. income tax rate to 31%, but under the new act it was further increased to 39.6%. Corporate tax rates also increased to 35%.

Expiration of the “Bush Tax Cuts”

Although they have not expired yet, in 2001 and 2003 Congress passed significant income tax cuts that became known as the “Bush Tax Cuts.” The acts reduced the top Federal income tax rate to 35%. However, both Congress and the Obama administration have vowed to let these cuts expire next year, which will result in a nearly 5% increase for taxpayers in the top tax bracket.

Obama to Raise Taxes on Middle America?

Although his biggest tax related campaign promise was NOT to raise taxes on anyone making under $250,000, it looks like the administration may be planning to do so anyway. According to new reports, Obama's treasury secretary warned that he could not rule out the idea of higher taxes on middle-class Americans as part of their health care reform package.

As the White House sought to balance campaign rhetoric with governing, officials appeared willing to extend unemployment benefits. With former Federal Reserve Chairman Alan Greenspan saying he is "pretty sure we've already seen the bottom" of the recession, Obama aides sought to defend the economic stimulus and calm a jittery public.

Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers both sidestepped questions on Obama's intentions about taxes. Geithner said the White House was not ready to rule out a tax hike to lower the federal deficit; Summers said Obama's proposed health care overhaul needs funding from somewhere.

"There is a lot that can happen over time," Summers said, adding that the administration believes "it is never a good idea to absolutely rule things out, no matter what."

During his presidential campaign, Obama repeatedly vowed "you will not see any of your taxes increase one single dime." But the simple reality remains that his ambitious overhaul of how Americans receive health care -- promised without increasing the federal deficit -- must be paid for.

"If we want an economy that's going to grow in the future, people have to understand we have to bring those deficits down. And it's going to be difficult, hard for us to do. And the path to that is through health care reform," Geithner said. "We're not at the point yet where we're going to make a judgment about what it's going to take."

Democrats Agree on Tax Hike to Fund Health Care

From the Washington Post.com:

House Democrats agreed yesterday to raise taxes on the wealthy to pay for a sweeping expansion of the nation's health-care system, proposing a surtax on the highest earners that could send the top federal tax rate toward 45 percent.

Beginning in 2011, the plan would target all income over $350,000 a year for families and $280,000 a year for individuals, Democratic sources said. The surtax would start at 1 percent, rise to around 1.5 percent for families earning more than $500,000, then step up again, to around 3 percent, for families earning more than $1 million, Democrats said.

That would raise about $550 billion over the next decade, Democrats said -- about half the cost of reforms that are expected to cost about $1 trillion. The surtax percentages could rise two years later, they added, if lawmakers think additional cash is needed to cover the cost of health-care reform.

The top federal tax rate currently stands at 35 percent, but Democrats have vowed to raise it to 39.6 percent next year, when cuts enacted during the Bush administration expire. Combined with other federal tax adjustments, the surtax could leave most taxpayers with annual incomes more than $350,000 facing top federal rates of at least 45 percent, said Robert Carroll, a senior fellow at the nonprofit Tax Foundation.