Components of Taxmageddon
Taxmageddon and the fiscal cliff are not accidents. Over the past two years, President Obama and congressional leaders intentionally pushed the resolution of expiring tax provisions and excessive and unsustainable spending past the November election. In doing so, they added uncertainty to business and financial markets and created this artificial crisis.
Taxmageddon, the tax side of the fiscal cliff, involves the expiration of key tax provisions and the beginning of new tax policy. These changes would translate into about a $500 billion tax increase in 2013.
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The tax policies expiring on January 2, 2013, include:
- Tax cuts from the 2009 stimulus;
- A 2 percent payroll tax cut (the “payroll tax holiday”);
- 100 percent expensing for business investment;
- The estate (“death”) tax spousal exemption set at $5 million and the death tax rate set at 35 percent;
- A reduction in alternative minimum tax (AMT) liability; and
- The full slate of 2001 and 2003 Bush-era tax cuts.
The tax provisions mainly affecting high-income earners include:
- Raising the 33 percent marginal tax rate to 36 percent and the 35 percent rate to 39.6 percent;
- A 3.8 percent Medicare tax on wages and salaries over $250,000;
- The return of the personal exemption phaseout (PEP) and the itemizers’ “haircut” (Pease provision);
- Returning to the 1997 estate tax parameters of the $1 million exemption threshold with 55 percent rate; and
- Raising the top dividend tax rate from 15 percent to a combined 44.4 percent (39.6 percent income tax rate plus the 3.8 percent Medicare surcharge) and raising the top capital gains tax rate from 15 percent to a combined 23.8 percent (20 percent income tax plus 3.8 percent Medicare surcharge).
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If Congress and the President does nothing in the next 3 days, your weekly pay checks will decrease.
They will drop 3-4.9% when your Income Tax Rates go up.
They will drop 2% when your Payroll Taxes for SS/Medicare go up.
In numbers, if you now get $500/week in your paycheck, your first paycheck in January will only be $475.
There are other things, too.
Capital Gains Taxes (on Investments) are set to increase.
If you are retired and get an investment income of $500/month now, you pay 15% in capital gains taxes. In January, that amount will decrease substantially per month.
And another is the Estate Tax.
Take me, for example.
My parents are 90 years old. Dad has been a fisherman all his life. He still owns 2 boats in his business, even though my brother now runs it.
If they pass away before Jan. 1, 2013 (God Forbid) we kids would inherit the business, the boats, the 2 houses (one in our fishing village and the one they retired to here in the city) and their personal savings.
This comes to about $5,000,000 worth of Assets.
We would owe 35% of any Value Over $5,000,000. Or nothing in Estate Taxes. We could continue supporting ourselves fishing, and provide livelihoods for ourselves, kids and grandkids indefinitely.
BUT, if they pass away AFTER Jan 1, 2013, here is what will change:
We will owe 55% of everything over $1,000,000. That is .55 x 4,000,000 or about $2.2 Million.
Yes, we would have to sell both boats, sell both houses just to pay the Taxes when they die.
Therefore, we would all be jobless. We would need financial assistance. We would no longer be able to support ourselves and therefore become dependent.
That is the best I can do to simplify the Fiscal Cliff and the Democrats need to get more and more of other people's money and how it affects capable, hard working people like my family and yours.
