Thursday, March 21, 2013

Raising Taxes

The laughingly named "American Taxpayer Relief Act" will start to do its work this quarter. Some of the laws develop over time as they are pretty stiff changes. The following is a summary of the law's content, from Van R. Hoisington and Lacy H. Hunt, Ph.D.

The initial direct impact of the federal tax changes totaled approximately $250 billion for 2013. The return of the FICA tax rate to 6.2% is the largest component ($127 billion), but several other federal tax changes also became effective. These include:
1. A 4.6% increase in the top marginal tax rate to 39.6%;
2. A phase-out of itemized deductions (mortgage interest expense, various state taxes - income, property and sales - and charitable gifts) for high-earners;
3. A phase-out and elimination of personal exemptions for high-earners;
4. An increase in the tax rate to 20% for capital gains and dividends for high- earners;
5. A 3.8% surtax on capital gains, dividends and other investment-type incomes for high-earners;
6. A 0.9% surtax added to the Medicare tax for high-earners;
7. A 2.3% excise tax on medical device manufacturers;
These taxes amount to a reduction in real household income, less transfer payments, of 2.6% ($250 billion divided by $9600 billion).

But, not surprisingly, the pain resulting from these changes will not be "spread around." These changes will be shrugged of by the rich. The disruptions caused by these changes will damage a minority, one of the few without a lobbiest or a PAC. The working producer.

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