For Some Americans, Your Tax Rate Will Double

The former Comptroller General of the Federal Government David Walker once wrote a CNN op-ed entitled Why Your Taxes Could Double. In this article he laid out the case that, sooner or later, tax rates will have to rise, perhaps even double, if our country is to avoid fiscal calamity. The cost of unfunded obligations like Social Security and Medicare will begin to crowd out all other budget items until the government is forced to either double taxes, reduce spending by half, or some combination of the two.

When Congress and the President lowered taxes January 1st, 2018, they did so at a cost of $1.5 Trillion over the next 10 years. They gave us the dessert before the spinach! We will experience historically low tax rates until we revert to pre-2018 levels in 2026. As a result, the increase in tax rates beyond 2026 will have to be all the more severe and draconian just to keep our country solvent. While many economists predict that tax rates will likely have to rise dramatically beyond 2026, very few are willing to put a firm date on when. So, some ambiguity persists as to how much longer beyond 2026 we will continue to enjoy relatively low tax rates.

Despite the general uncertainty about the timing of further tax increases beyond 2026, there is a certain segment of the population that will see a near doubling of their tax rate no matter what. This doubling of taxes is guaranteed because it’s written into the IRS tax code. I’m referring to the husband or wife in the 12% tax bracket that survives the death of their spouse.

Think about it: If you’re a married couple and have $65,000 of taxable income, you’re still in the 12% marginal federal tax bracket (the 12% tax bracket ends at $77,400). While nobody relishes paying taxes, 12% is a good deal of historic proportions. Taxes for you will never be lower than they are right now. In other words, taxes are on sale. However, if one spouse dies, and the surviving spouse continues to experience that same $65,000 of taxable income, he suddenly finds himself catapulted from the 12% marginal bracket to the 22% marginal bracket (the 22% tax bracket for a single filer starts at $38,700). Going from a 12% tax bracket to a 22% tax bracket is a near doubling of your tax bracket!