This year's election will touch on many areas including the economy, gas prices, and women's rights.  But the one constant issue that has always existed in an election year is taxes.

The United States has enjoyed relatively low tax rates for the last few years.  However, the Bush-era tax cuts are scheduled to expire at the end of this year and if that occurs most taxpayers will see increases in their tax rates and other factors that will cause their tax bills to increase.

So here is what will happen if the tax cuts evaporate as scheduled on midnight of December 31, 2011:

Higher Tax Rates 
Bottom line is that rates will go up for everyone.  The existing 10% bracket will go away and the lowest new bracket will be 15%. The existing 25% bracket will be replaced by the new 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.

Higher Capital Gains and Dividend Taxes
Currently the maximum federal rate on long-term capital gains and dividends is 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20% (or 18% on gains from assets acquired after December 31, 2000, and held for over five years). The maximum 15% rate on dividends will more than double to 39.6%.

People in the lowest two rate brackets of 10% and 15% currently pay 0% on long-term gains and dividends. Starting next year, they will pay 10% on long-term gains (or 8% on gains from assets acquired after December 31, 2000, and held for over five years) and 15% and 28%, respectively, on dividends.

Harsher Marriage Penalty
The Bush tax cuts included several provisions to ease the so-called marriage penalty, which can cause a married couple to pay more in taxes than when they were single.

Right now, the bottom two tax brackets for married joint-filing couples are twice as wide as those for singles. This helps keep the marriage penalty from biting lower- and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many couples.

Currently, the standard deduction for married joint-filing couples is double the amount for singles. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles.

All this means that many lower- and middle-income couples are facing higher tax bills due to a harsher marriage penalty.

Return of Phase-Out Rules for Itemized Deductions
Before the Bush tax cuts, a phase-out rule could eliminate up to 80% of a higher-income individual's itemized deductions for mortgage interest, state and local taxes and charitable donations. The rule was gradually eased and finally eliminated in 2010.

Next year, the phase-out will be back in full force unless Congress takes action and the president approves. So, if you itemize and have 2013 adjusted gross income above about $175,000 (or about $87,500 if you use married-filing-separate status), get ready for this phase-out rule to take a bite out of your wallet.

Return of Phase-Out Rule for Personal Exemptions
Another pre-Bush phase-out rule could eliminate some or all of a higher-income individual's personal-exemption deductions. (For 2012, such deductions are $3,800 each.) The rule was gradually cut back and finally eliminated in 2010. But it will be back next year barring action in Washington.

So you need to be ready for yet another bite out of your wallet if you are a married joint-filer with 2013 adjusted gross income above about $265,000.

If you are single, the magic number will be about $175,000. If you use head-of-household filing status, watch out if your 2013 adjusted gross income exceeds about $220,000.

Estate and Gift Tax Exemption
The combined estate and lifetime gift tax exemption is currently $5 million per gifting individual.  This $5 million exemption is historically the highest exemption from the combined gift and estate tax that we have had under the nation's tax laws. However, this $5 million exemption is scheduled to be permanently reduced to $1 million at the end of December under current law.

Some Bush Tax Cuts Are Likely to Be Continued
Some elements of the Bush tax cuts have bipartisan support and will likely be continued beyond this year.
Examples include inflation-indexed alternative minimum tax, or AMT, exemption amounts, the ability to use nonrefundable personal tax credits to offset your AMT bill and the deduction for qualified higher-education tuition and fees.

The current versions of the child tax credit, earned-income credit, dependent-care credit and adoption credit also are more likely than not to be continued. The Bush tax-cut legislation liberalized these credits, and later legislation liberalized them even more.

Summary
Even though President Obama will be campaigning to allow the Bush tax rate cuts to expire for upper income, we believe that, in the end, he will OK an extension for all.  In exchange, he may require the GOP to concede on continuing the payroll tax cut for workers, a debt limit hike and more spending on jobless benefits and other items.  The compromise will give the next Congress time to start serious work on tax reform in 2013.  The results of the November elections will be a big factor in how the overhaul plays out.  However, if we are wrong, taxpayers may have to perform end of year scrambling to mitigate as much as possible the impact on their tax bills of those benefits that will not be extended.