So Obama's pending tax increases won’t affect you because you don’t make $250,000 or more a year? Think Again!
As of now, the tax cuts approved by congress in 2001 and 2003 that were originally scheduled to sunset in 2010 are now about to increase taxes on tens of millions of taxpayers earning well below $250,000 after December 31, 2012.
Currently Scheduled Obama Tax Increases
After December 31, 2012, absent another extension, tax rate changes will be as follows:
Individual income tax rates: Current rates of 10, 15, 25, 28, 33, and 35 percent, are scheduled to revert to (increase to) 15, 28, 31, 36, and 39.6 percent. This increases taxes by 50% for those at the bottom of the wage scale and by upwards of 80% for middle income wage earners.
Capital Gains Rates: The current rate of 15 percent on net long-term capital gains through 2012 will revert to 20 percent for most sellers of stocks, assets, your home (assuming your home HAS any gain Uncle Same wants 20% of it), etc.
Dividends Rates: An individual is taxed at 15 percent on dividends under current law. After January 1, 2013 that rate becomes the same as your maximum income tax rate, or as much as 39.6%. That would be a 164% INCREASE over current dividend tax rates.
ObamaCare Impact: Employment, Self Employment and Medicare Tax Increases
Social Security tax increases by 35.4%! Many employees and the self-employed will see an additional 2% withheld as their Social Security tax increases after January 1, 2013, this tax rate will increase to 7.65 percent from the current 5.65 percent, a 35.4% increase!
Medicare tax increases by 62%! Some employees will see the Medicare portion of their employment tax increase from 1.45 percent to 2.35 percent, a 62% increase!
Self-Employment Tax Penalty of 31%! Some taxpayers will see increases the Medicare portion of the self-employment tax by 0.9 percent - from 2.9 percent to 3.8 percent, a 31% increase!
In addition ObamaCare subjects investment income (predominantly “passive income”) to the 3.8 percent Medicare tax. (This is in ADDITION to the tax increase from 15% to 39.6% making the effective tax on dividend investments 43.4%!
Here are the details:
‘The Bush Tax Cuts’ refers specifically to the measures enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Along with the individual, capital gains, dividends, and estate tax rates that remain the focus of current attention included over thirty other major changes to the Tax Code, all of which are set to sunset at the end of 2012 automatically.
The 2010 Tax Relief Act extended all of these measures through 2012, but no further.
In addition, the Obama Administration’s healthcare reform legislation, aka ‘ObamaCare’, will mandate the Medicare portion of the self-employment taxes to increase from 2.9 percent to 3.8 percent at the end of 2012 and the investment income of certain taxpayers will be subject to a 3.8 percent Medicare tax regardless of your income level. In other words, even if you earn LESS than Obama’s magic $250,000 floor, you will still see tax increases which he promised would not happen.
Individual Income Tax Rate Increases
Under current law, the reduced individual income tax rates created by ‘Bush Tax Cuts’ and extended by the 2010 Tax Relief Act are scheduled to automatically sunset at the end of 2012. Unless extended again, the individual marginal tax rates, currently at 10, 15, 25, 28, 33, and 35 percent, are scheduled to revert to (increase to) 15, 28, 31, 36, and 39.6 percent, effective for tax years beginning after December 31, 2012. That represents tax increase ranging from 87% for middle income earners to 13% for high income wage earners. An increase of 50% will be triggered for those at the bottom of the wage scale.
The 13% increase is what the Dems and the GOP are quibbling over as it affects only the top income tax bracket. While the GOP advocates keeping the tax brackets at current levels, the Democrats want to target a specific group of Americans to be singled out and discriminated against.
Capital Gains Rate Increase
Under current law, reduced tax rates on qualified long-term capital gains are scheduled to automatically sunset at the end of 2012. The 2010 Tax Relief Act extended the reduced maximum rate of 15 percent on net long-term capital gains through 2012. After December 31, 2012, absent another extension, the maximum tax rate on capital gains of non-corporate taxpayers will revert to 20 percent (10 percent for taxpayers in the 15 percent bracket).
Dividends Rate Increase
The maximum tax rate for qualified dividends received by an individual is 15 percent for tax years beginning before January 1, 2013. A zero percent rate applies to qualified dividends received by an individual in the 10 or 15 percent income tax brackets. Absent an extension, after December 31, 2012, qualified dividends will be taxed at the applicable ordinary income tax rates, with the highest rate scheduled to be 39.6 percent.
Health Care Reform Impact: Employment, Self Employment and Medicare Tax Increases
In 2011 and 2012, many employees and self-employed individuals temporarily benefited from a 2 percent reduction in the amount of Social Security tax withheld from payroll checks. Effective January 1, 2013, this tax rate will automatically revert to 7.65 percent from the current 5.65 percent. Additionally, certain employees will see their Medicare portion of employment taxes rise from 1.45 percent to 2.35 percent, so that the total Medicare taxes paid by both the employee and the employer will rise to 3.8 percent (employee at 2.35 percent, and employer at 1.45 percent).
In addition, the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) (the "2010 Health Care Tax Act") increases the Medicare portion of the self-employment tax by 0.9 percent - from 2.9 percent to 3.8 percent - on earnings in excess of $250,000 in the case of married taxpayers filing a joint return, $125,000 if married and filing separately, and $200,000 for all other taxpayers, effective for tax years beginning after December 31, 2012.
Perhaps more critically, for the first time in the history of Social Security, the 2010 Health Care Tax Act further subjects investment income (predominantly “passive income”) to the 3.8 percent Medicare tax, although no provision has been made for the transfer of this tax from the General Fund of the United States Treasury to the Medicare Trust Fund. Effective January 1, 2013, new section 1411(a)(1) of the Internal Revenue Code imposes this tax on the lesser of (a) “net investment income,” or (b) the excess of modified adjusted gross income over $250,000 in the case of married taxpayers filing a joint return, $125,000 for married taxpayers filing a separate return, and $200,000 for all other taxpayers.
"Net investment income" is defined as:
1. Non-business interest, dividends, annuities, royalties, and rents;
2. Other gross income of a passive activity or a business trading financial instruments;
3. Net gain on the disposition of non-business property (including net gain indirectly derived from disposition of a partnership interest or S corporation stock); and
4. Income from the investment of any business's working capital.
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In Summary, the Congressional Budget Office has predicted that the above tax increases, using a static analysis (i.e. assuming that taxpayers do not change their earnings or investment habits after December 2012) will raise over $550 Billion in new tax revenue which will be added to the $2.2 Trillion that the current code generates.
The CBO’s static analysis indicates that Obama’s new taxes will effectively take 25% MORE money away from the vary people that invest in new business, new construction, new equipment and new job creation.
In addition, Obama, in his TV adverts says that “having millionaires and billionaires pay just a little more, will allow us to begin to ‘PAY DOWN OUR DEBT’” but as current spending levels are between over $3.4 Trillion the 2013 Obama Tax Increases will STILL leave us with a deficit of around $750 Billion *.
There is no way the DEBT can be paid down by simply taxing wealthy people more.
Besides, the CBO analysis is a STATIC analysis. The rich have competent tax advisors that are today warning their clients to move their capital resources to places where the affect of the Obama Tax Increases will be minimized… places like Singapore, Cayman Islands, Bermuda, etc.
The projected losses from the trillions of dollars in investment capital disappearing will result in a further loss of over 750,000 jobs over the next five years.
Do you STILL think Obama’s tax increases won’t affect you because you don’t make $250,000 or more a year?
Do you also believe in the Tooth Fairy?
* By comparison, Bush’s deficit in 2008, his last year in office, was $165 Billion.