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Prepare for Higher Taxes ... Maybe

Have you heard about how our government's planned 2008 budget includes provisions to increase the personal income tax rate for all of us? No? Well, you heard about Paris Hilton's unfortunate incarceration, at least, I hope. It's nice that the media has its priorities straight.

Here's the scoop, though: The 2008 budget proposed by Democrats this year is likely to raise some taxes. This has set partisan spinners in high gear, as right-wingers decry it as one of "the largest tax increases in history," while left-wingers explain that it won't increase taxes at all.

As the folks at the Annenberg Political Fact Check website note, however, the truth lies somewhere in the middle. While the budget doesn't explicitly impose additional taxes, it does allow many of President Bush's previous tax cuts to expire, as they were scheduled to (mostly in 2011). Thus, some tax rates will revert to their higher, pre-2001 levels.

Some of President Bush's tax relief measures will remain, such as relief for the "marriage penalty," the $1,000-per-child credit, and the 10% tax bracket for those at the lowest income level.

The details have yet to be worked out, so much speculation remains, but here's a clue as to what we might expect. Below are the current 2007 tax rates for single taxpayers, along with the rates from 2000, immediately before the initial tax cuts:


  • For taxable income between $0 and $26,250: 15%
  • For taxable income between $26,250 and $63,550: 28%
  • For taxable income between $63,550 and $132,600: 31%
  • For taxable income between $132,600 and $288,350: 36%
  • For taxable income of $288,350 and above: 39.6%


  • For taxable income between $0 and $7,825: 10%
  • For taxable income between $7,825 and $31,850: 15%
  • For taxable income between $31,850 and $77,100: 25%
  • For taxable income between $77,100 and $160,850: 28%
  • For taxable income between $160,850 and $349,700: 33%
  • For taxable income of $349,700 and above: 35%

Long-term capital gains tax rates, which President Bush lowered to 15%, may revert to previous, higher levels. They were 20% for most folks, before the last cuts, and had been raised from 20% to 28% in 1986. For more perspective, those tax rates have been as high as nearly 40% in the mid-1970s and around 25% for most of the 1950s and 1960s.

I don't wanna pay!
If you're thinking that these expected increases are an outrage, remember that our government's spending has increased mightily in recent years, with war expenditures and new Medicare prescription drug coverage among the high-ticket items. Such spending needs corresponding revenue, so tax increases shouldn't be so unexpected. The only thing you can count on with taxes is that they'll never stay the same for long.

In the meantime, keep an eye out for further changes to our tax code. One topic under discussion is reforming the Alternative Minimum Tax -- something that's long overdue.

Spend a little time learning about the world of taxes and, at the very least, you'll be more informed and better able to save money. Two good resources for learning more are our Tax Center and the IRS itself, at

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Longtime Fool contributor Selena Maranjian recently learned that the bagpipe was first made from the liver of a sheep. The Motley Fool is Fools writing for Fools.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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