As Brent Musburger said when he spotted Miss Alabama in the crowd at the BCS National Championship game— “Whoa!”
The exclamation is also an appropriate reaction to the additional taxes we’ll pay effective this year and beyond. In fact, after further review, “Whoa!” doesn’t even begin to describe the feeling.
First, we’ve got the American Taxpayer Relief Tax Act of 2012, which just got done after the first of the year. Don’t you love that name? It’s got such a warm and fuzzy feel to it.
For starters, all wage earners have to pay that extra 2 percent payroll tax now that this tax holiday has expired. The extra 2 percent applies to all taxpayers, not just those greedy rich people. In a household that has two married wage earners earning more than the $113,700 maximum withholding per year, the combined tax bill will be $4,548 more this year. That little ol’ 2 percent is a 48-percent increase (6.2 percent versus 4.2 percent) over what we’ve paid the last two years.
Then there’s that pesky personal exemption phaseout for individuals making $250,000 per year and couples that make $300,000 or more per year. Their deductions will be limited even more. (Like these deductions haven’t been chopped dramatically in years past.) Again, this affects only the rich folks, and sticking it to them is OK.
But let’s not forget those ultra-rich people making more than $400,000 individually or $450,000 or more as a couple. Their top marginal tax bracket is rising from 35 percent to 39.6 percent. Granted the 39.6 percent threshold applies to taxable income, after deductions and exemptions, but it’s still a hit. That’s no hill for a climber. Bring it on. What else have you got?
Do you have any capital gains or dividends? That rate goes from 15 percent to 20 percent in 2013. That doesn’t include the 3.8-percent surcharge on investment income those greedy rich folks will pay to help defray the cost of Obamacare.
If you’re dealing with a large estate, the top tax rate for gift and estate taxes rises from 35 percent to 40 percent. Yes, government officials know that money has already been taxed once, but they insist it’s their right to tax it again.
Here’s a partial list of new taxes to help pay for Obamacare that kick in this year.
• The aforementioned 3.8-percent surcharge on capital gains and dividends for individual filers earning $200,000 and married couples earning $250,000 or more. Are you selling your home in 2013? Capital gains from that sale could figure into this mix. But again, this is only for the rich folks.
• Medicare payroll taxes increase 0.09 percent for individuals making $200,000 and couples making $250,000 or more. Remember that the FICA payroll tax is capped at $113,700, but the Medicare payroll tax just keeps going up.
• Health care itemized deductions will be limited, which hurts all families facing high medical expenses.
• The amount you can contribute to a flexible spending account has been limited to $2,500 per year.
• Corporate deductions have been limited, and medical-device manufacturers and importers face a 2.3-percent excise tax. (The list goes on and on.)
It’s not new this year, but I always like to mention the Alternative Minimum Tax in these discussions. This tax was designed by the IRS for those taxpayers who need to pay even more than the prescribed tax rates, just because, as the government sees it, they haven’t paid enough already.
What do we all do as a result of this extra money we’re forced to pay the government? We figure out how to cut out and delay spending on all kinds of products and services. Those cuts hurt businesses and the economy. Even those rich folks will cut back. Keep it up, and we risk being taxed into another recession.
Speaking of reducing expenses, how are we doing with our goal of cutting government spending? Have we made those cuts amounting to $1.2 trillion that were agreed to in 2012? I can answer that—no. Did we get any spending cuts with the Tax Relief Act just passed and signed into law? I can answer that one, too—no.
Regarding spending cuts, my advice to Republicans and moderate Democrats is to dig in and don’t give any ground on this one. It’s time to take the charge card away from the people who continue to abuse it.•
Morris is publisher of IBJ. His column appears every other week. To comment on this column, send e-mail to firstname.lastname@example.org.