By Jay Heflin - 08/18/10 10:39 PM EDT
Their findings show that seniors will be hit, on average, with a $1,700 tax hike if taxes on capital gains and dividends increase, which is slated to take place in January.
Capital gains taxes are expected to readjust from 15 percent to 20 percent, and the 15 percent tax on dividends will align with ordinary income rates that will top out at approximately 40 percent.
Seniors earned more than $77 billion in dividend income in 2008, which represents 48 percent of total dividend income earned by all Americans that year.
In that same year they also earned more than $150 million in capital gains, which represents 30 percent of total capital gains income earned by all Americans that year.
Many seniors live on fixed income, and recent data from the Joint Committee on Taxation shows that 8 million tax returns filed by them could show higher taxes on investment income if Democrats don't extend the Bush tax cuts. This represents more than half of all tax returns filed by seniors.
The 10 percent tax bracket will also be eliminated if the Bush tax cuts are not extended, costing seniors an average tax increase of $503 in 2011 because of the progressiveness in the tax code.
Democratic leaders have repeatedly vowed to extend the Bush tax breaks that benefit the middle class, which would include many seniors. Debate on the issue is expected to begin in earnest this fall, but some think the election might postpone action on the issue until later this year.
"Congressional leaders have said they plan to schedule a vote on the fate of the Bush-era tax cuts before the November elections, but for now, the outcome remains uncertain," said Tax Foundation President Scott Hodge in prepared remarks.