Are you ready for your tax hike?

Yes, you're going to get one on January 1, as things stand now. Unless Congress acts (and I would put good odds on them doing so), all income taxes go back to what they were before the "Bush tax cuts" took effect. For a fairly average family, that will be something like $200 per month.

Here's the deal. All those tax cuts were "temporary." They had to be made permanent later, and the Republicans assumed they'd be able to do that late in President Bush's second term. Unfortunately, they had an experience in 2006 much like the Democrats just had, and they were never able to pass the legislation.

What does this mean to you? Well, even if you're currently paying no income tax, you may start seeing federal income tax withheld from your paycheck starting Jan. 1. Under the Bush tax cuts, some 4,000,000 taxpayers were removed from the tax rolls. In fact, 50% of all families in the U.S. currently pay no income tax.

The deal is that the withholding charts required to be used by employers on Jan 1 will be the same as they were before those tax cuts, and they are already going out to employers. That means that everyone will move up a bit in the percentage required to be withheld. Now, Congress may pass a bill before Dec 31, but there won't be time to print new withholding charts. There may be some adjustment to those charts to make up for the initial high withholding, but there's no guarantee of that.

So, if you're currently in the 10% tax bracket created by that bill, you will now be in the 15% tax bracket.

If you are currently getting the $1,000 per child earned income tax credit, you will only get $500.

The "marriage penalty" will come back.

The personal exemption and many deductions will also change.

And I thought those tax cuts were all about the wealthy!

Estate taxes are hard to compare, because you have to not only compare rates, but trigger points.

A Comparison of Estate Taxes by Countries

That is from 1999, but it will be the effective rate if no tax cut extension is passed.

You have to have a fair amount of money before they're triggered. And it should be pointed out most of the wealthiest Americans pay no estate taxes; they've put their wealth into trusts that are exempt. For example, so far as I can find out, no Kennedy of the last two generations has had to pay an estate tax.

It's interesting that Canada has no estate tax.

My bet would be that, much like the "luxury tax" on yachts passed by the Clinton administration, the estate tax doesn't actually collect much money, because people have found ways of avoiding it. As near as I can tell, estate taxes added up to every penny earned by every American for approximately 12 hours in 2009. (That number comes from the calculation for "Tax Freedom Day.")

Have you seen the news today about the recommendations from the Budget Deficit Reduction Committee? Some very interesting ideas, but really no big solutions to our biggest budget problems. That is Social Security, Medicare, and Medicaid essentially use 100% of all the annual income tax revenues. Everything else, we have to borrow for.

I think the biggest problem is the family business or farm. When I worked on a ranch in Colorado, I knew many people who were cash poor but land rich. The family I worked for had 2,000 acres of what they considered pretty good $50/acre land. They sold off one pasture for development at $500 per acre, and the developer re-sold parcels of a minimum of 8 acres for $1,000-1,500 per acre. That made the remaining 1500 acres worth nearly $2,000,000. When the father died, they had to sell off nearly half the ranch to pay the estate taxes, and it essentially killed the ranch.

While Texas does not have a state income tax, it DOES have a state inheritance tax. Or, more accurately, it did until the U.S. dropped the inheritance tax, and it will again if the inheritance tax is reinstated.

This was at the root of the big lawsuit over where Howard Hughes died. Texas wanted that inheritance tax!

By the way, the federal inheritance tax is reduced by the amount paid to any state.