Here is a brief rundown of the tax changes in the new tax bill.
First, the positives
Finally, the income at which the dreaded Alternative Minimum Tax kicks in is indexed for inflation and will not need to be annually “fixed”
The severe cut in Medicare payments to doctors that would have forced many of them to drop Medicare, a cut that has similiarly been put off every year, has been killed
Everyone
The employees’ payroll deduction for Social Security goes back to 6.2%, ending the 4.2% rate we had in 2012 as part of a stimulus bill. So, everyone will see a 2% reduction in their salary this year from 2012.
High earners (singles with > $250,000 in income and marrieds with $300,000)
Phaseout of personal exemption ($3,800)
Elimination of up to 80% of all deductions (includes charitiable contributions and mortgage interest)
Extra-high earners (those with income over $450,000 (marrieds) and $400,000 (singles))
Tax rate – goes from 35% to 39.6%
This is much higher, perhaps over 50%, if you adjust for effects of
1. elimination of personal exemption
2. elimination of 80% of deductions
3. Obama surcharges on investment income (3.8) and Medicare (0.9%)
4. state income taxes, where applicable
Dividends tax – goes from 15% to 23.8% (including 3.8% Obamacare surtax)
Capital gains rates go from 15% to 23.8% (including 3.8% Obamacare surtax)
Estate taxes
Exemption stays at $5,000,000
Top rate goes from 35% to 40%
Bottom line: Obama won.
The Dems got their tax increases, especially on the wealthy, and the Republicans failed to get spending reduced. Note that $110 billion in spending cuts scheduled to kick in automatically on Jan 1 were put off for two months so everyone can work together in similar fashion to deal with those. And, you thought the drama was over!
Also, as part of this “deficit reduction bill” federal spending will go up, too. What? – you thought a balanced deficit reduction bill should cut spending?
We can debate whether the “rich” should pay more and talk about the very troublesome long-rising gap between the wealthy and the rest. I actually have a great deal of sympathy with that.
But, I have little sympathy with how this fiscal cliff fix worked out on the side of spending. And, don’t think for a minute that 1) the tax revenues will be as much as calculated or 2) that these tax hikes, along with the implementation of Obamacare costs to business won’t slow the economy. They already have. Most business owners and CEOs have already put projections into their planning along the lines of what got done last night. That is one reason the economy is growing slowly when it should have long since recovered.