Friday, September 17, 2010

The Minimum in Tax Hikes You Should Expect from the Obama Administration

Alan Viard explains:
In 2010, the top income tax rate bracket for ordinary income is 35 percent. Besides wages and interest income, this income category includes profits from pass-through business firms—sole proprietorships, partnerships, and S-corporations.

Under the president’s proposal, the top bracket will rise to 39.6 percent. A stealth provision that phases out high-income taxpayers’ itemized deductions will also be reinstated, adding another 1.2 percentage points to the effective tax rate, bringing it to 40.8 percent. Wages and some of the pass-through income will also remain subject to a 2.9 percent Medicare tax. These 40.8 and 43.7 percent tax rates, which will apply in 2011 and 2012, match the 1994 to 2000 rates—the same top bracket, stealth provision, and Medicare tax were in place then.

But the picture changes in 2013. Under the healthcare law adopted in March, the Medicare tax will rise that year, from 2.9 to 3.8 percent. Also, a new 3.8 percent tax, called the Unearned Income Medicare Contribution (UIMC), will be imposed on high-income taxpayers’ interest income and most of their pass-through business income that’s not subject to Medicare tax. So, under the president’s proposal, virtually all of top earners’ ordinary income will be taxed at 44.6 percent, starting in 2013.


  1. My wife and I have made a game out of these increases. For every $1 in tax increases we are going to try to cut $3 in expenses. We started practicing this year as if the 39.6 tax were in place and we are averaging about $2 per $1 of imagined tax. We could probably get to the $3 once the tax is enacted but that will take some tougher choices that I don't know if we will be able to make.

    To me this is pure theft by the majority against the minority. I would not mind any of these increases if everyone else was feeling the pinch too. The reality of the progressive movement is that it is based on class theft and little else. Its quite clear that the average progressive has no intention of actually having to pay for the government they desire. Well, I don't either and I can assure you that as the tax rate hits 50%, I am done. I have no interest in taking risk to have 1/2 my upside stolen from me. Let the progressives start the businesses and mortgage their houses and deal with the constant hassles that come from owning a business.

  2. Anonymous said "I would not mind any of these increases if everyone else was feeling the pinch too."

    Really? I don't want to get punched in the nose, and it won't make it any more tolerable for me to know others are getting punched in the nose too.