Economic Issues in Agriculture
Agricultural & Applied Economics
The University of Georgia
July, 2001
Second
in a series:
About 70% of the tax cuts are (or will be) in tax rate reduction over the next ten years. These were shown in the June newsletter.
Some
other major tax changes are discussed here. Keep
in mind all of the tax changes expire after 2010 unless Congress votes
to retain the current legislation.
....from
2002 through 2009. But full repeal of the estate tax is delayed until 2010...
and actually reappears the next year according to the new law. Estate planners
are having problems with planning not knowing if the repeal will stay in
place.
We
would guess that permanent estate tax repeal is doubtful... but
it is likely that Congress will retain a large exemption. This bears watching!
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Calendar Year |
Estate
and Gift Tax
Tax Exemption |
Highest
Estate and
Gift Tax Rate |
| Current | $675,000 | 55% |
| 2002 | $1 Million | 50% |
| 2003 | $1 Million | 49% |
| 2004 | $1.5 Million | 48% |
| 2005 | $1.5 Million | 47% |
| 2006 | $2 Million | 46% |
| 2007 | $2 Million | 45% |
| 2008 | $2 Million | 45% |
| 2009 | $3.5 Million | 45% |
| 2010 | Tax Repealed | |
The new law lets individuals put away
more money for retirement - IRA's and Roths. This marks the first increase
in contribution limits since 1981.
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| Effective Date | Under 50 Years of Age | 50 Years and Older |
| 2002 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
The limit on payins to 401 (k)s, 403 (b)s, and 457 plans will increase from the current $10,500 to $11,000 in '02, and will rise $1,000 a year until it hits $15,000 in '06.
These are not in the tax tables, but
effectively raise marginal tax rates - will help upper-incomers.
First, the phaseout of personal exemptions will be scrapped - gradually over a five-year period - starting in 2006. The loss of personal exemptions adds 0.93% per exemption to the marginal tax rates for folks in the top bracket.
Second, the itemized deduction phaseout will be eliminated - in stages - starting in '06 - and will be gone in 2010. This current cutback in itemized deductions raises the effective marginal tax rate on high-incomers by up to 1.17%.
The budget tight rope Congress is walking is shown by the break corporations will get for paying estimated taxes. An upcoming estimate is delayed two weeks - one due September 17, '01 can be postponed until October 1 - when the new fiscal year begins. And in 2004, 20% of the estimated due September 15 can be transferred until October. By moving tax receipts from one fiscal year to another, it is hoped that the Medicare trust funds will not be tapped for other uses.
William Givan, Editor
Extension Economist
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