Wednesday, November 7, 2012

2013: Lots of Taxes Coming...

In the very near future, we have a lot of tax changes that, of course are current law and have been for a while.  So while they are not tax hikes, they sure will feel like it.  Whether you know a punch to the jaw is coming does not change the fact that it hurts, nor does it change the damage that it does beyond whatever preparations are made to brace for it.

That said, in 2013 we have a 3.8% surtax on investment income for those earning more than $200K (this is for individuals) per year.  This is on everything from interest, dividends, capital gains, real estate, etc.  This, combined with the increase in marginal rates, puts the top income tax rate at 43.4%.  Additionally, the top rate for long term capital gains will go from 15% to 20%.  Add the investment surtax, and the top marginal rate for capital gains earnings becomes 23.8%.  This is over a 50% increase.

Boo hoo, those poor rich folks, right?  Like they need more money, right?

Ignoring the effects throughout the economy, rich or poor, that this destruction of capital will have, it is not just "the 1%" that will be hurting.

If nothing is done, the effects will be much greater on the poorest and the middle class.  These are the folks much less capable of absorbing such an impact.

First, the payroll tax will go up by 2%.  That, plus the fact that employers are paying more in Medicare taxes means less take home pay. 

(side note: if this tax went up even more, to the level it would need to be to adequately fund Social Security and Medicare, there would probably be a stronger push to reform the programs)

Next, the bottom capital gains rate (individual gain of 35K or less) goes from 0% to 10%.  This impacts the small business owner who sells his company, or sells a rental property for a net gain, or someone with a small investment portfolio that they rely on to supplement their income/retirement.

Next, the bottom tax bracket (individual taxable income below $8,700) goes from 10% to 15%.  A 50% increase.  Add in the payroll tax increase, and some one with that income (or that portion of anyone's income), will see a 70% increase in tax expense.  Every other bracket will also see an increase except the second one (income between $8,700 and $35K for individuals).

Will anything be done, legislatively, to stop this?

Should anything be done, legislatively, to stop this?

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