Tuesday, December 4, 2012

Merry TAX-mas

The "Fiscal Cliff" is 28 days away and the House Republicans are presumably painted in a corner by the President and the Democrats.  It is "reality news TV" playing out sound bite by sound bite.  A ridiculous public display of amateur negotiations and negotiators.   A stalemate based on a single issue -- TAX RATES on Incomes over $250K.

If you look carefully at the tax tables you will quickly see that this is not a fight about INCOME TAX RATES - it is really a fight about CAPITAL GAINS and DIVIDEND TAX RATES.

Look at the tables:

Individual Income Tax Rates
Tax Brackets (2012 Dollar Amounts)Marginal Rate
Unmarried FilersMarried Joint Filers
OverBut Not OverOverBut Not Over20122013

Long-Term Capital Gain Rates
Maximum Rates201220132013 (including Medicare contribution tax)
Long-Term Capital Gain15%20%23.8%
Qualified 5-Year Capital Gain15%18%21.8%

Dividend Income Rates
Maximum Rates201220132013 (including Medicare contribution tax)
Qualified Dividend Income15%39.6%43.4%
Ordinary Dividend Income35%39.6%43.4%

Notice that the INCOME TAX RATE changes are nominal. The Married Joint Filers from $17,400 - $70,700 INCOME TAX RATE DOESN'T  EVEN CHANGE!!!!!!  regardless of what is done. The other brackets are up only 3% - 5%.

But look at the CAPITAL GAINS and DIVIDEND TAX RATES -  up 8.8% - 28.4%!!!

So the Republicans and Democrats waste time talking about spending, debt ceilings, medicare, social security, growth, jobs when the "show stopping" negotiating issue is Unearned Income Tax Rate.

It's time to state the obvious!  What will Santa deliver on Tax-mas?

Addendum:   Just a clarification -  My observation about no change is on the rate in the $17K-$70K bracket - not the total taxes on income.  Rates are at the margin but everyone pays the  5% increase for the first  bracket  $0 to $17,400 - or $870.  So if you made (married filing joint) $70,700 and the Bush tax rates expire then your taxes would increase 1.2% or less than $2.50/day - just over the cost of a large coffee.

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