Remember when President Obama promised that he would not raise taxes on taxpayers making less that $250,000? Here are 5 reasons why you can never trust a politician.
President Bush helped the American taxpayer by enacting a series of tax cuts and deduction increases, that all of us were able to benefit from. As you have heard in the news, we are facing a financially significant issue coined the “fiscal cliff”. As the Bush tax cuts approach expiration (they were meant to be a temporary boost to the economy), Congress and the White House are at odds as to how to resolve this issue. Both sides agree that simply letting them expire could be disastrous to any hope of an economic recovery, and would lead to a certain recession next year.
Here are 5 tax increases that will affect you:
- Payroll Tax – 2% increase. The FICA portion of your payroll tax deductions (social security and medicare) are 4.2% for the employee, and 6.2% for the employer. These will go back to 6.2% for the employee portion, while the employer portion remains the same.
- Itemized Deductions – Phased out. Tax filers who elect to itemize their deductions (mortgage interest, taxes paid, employee job related expenses, etc) will no longer have that benefit, and will be forced to settle for the standard deduction. For those of you with large mortgages who travel a lot for work, this will hit you directly.
- Income Tax Increases – See chart. Back to how Obama said he will not raise taxes of those making less than $250,000. Beginning on January 1st 2013, anyone who makes more than $35,350 ($58,900 married filing jointly) will see a tax increase on every dollar earned above that. Yes, you read that correctly. The marginal tax rate goes from 25% to 28% for what is considered the average per capita income across most of the country. So much for not taxing the middle class huh?
|Tax Brackets (2012 Dollar Amounts)||Marginal Rate|
|Unmarried Filers||Married Joint Filers|
|Over||But Not Over||Over||But Not Over||2012||2013|
- Capital Gains – 15% up to 20% + 3.8% “Medicare Contribution Tax”. For those of us who have unearned income and capital gains on stocks for a period longer than a year (long term capital gain), we will pay 23.8% in taxes on those gains. With the increase in the marginal tax rate we see that it also raises the short term capital gains rate (which happens to be considered income and taxed the same as your payroll income). So either way investors, and the markets in general, will certainly pay more in taxes next year. A terrible thing for the markets.
- Dividend Income – 15% up to 39.6% + 3.8% “Medicare Contribution Tax”. This is what is going to kill a lot of the momentum in the stock market we have seen this year, specifically the higher yielding dividend stocks. It will also crush the stock price of many good companies who are considered dividend stocks, and are held by a lot of pensions and mutual funds. A 15%-20% drop in this group of stocks will have a huge negative impact on the US economy. Not only are corporations going to see higher taxes next year, dividends too will get it’s cut, and if you held the stock for less than a year….well you too will again be taxed at your income tax rate. I have never seen a single dollar earned, get taxed that much in my lifetime! This means that even those who don’t own stocks will suffer as well.
Take an average working man, who has a company sponsored pension. Well he will unknowingly pay more to Obama’s “no tax for the middle class” idea, as the value of his company’s pension fund deteriorates under these new tax rates. Also, the working family that ritually contributes to their 401k at work, will suffer a deterioration of their retirement savings as a large portion of their “safe” mutual funds hold high dividend income stocks. See how politicians can twist words? Everyone who holds a job, will pay more taxes next year. Every single one….