Today’s post may appear to be another political topic, but it’s not. I don’t think most people realize just how much taxes will go up on families making over $250,000 a year if President Obama is re-elected. The president says he wants to raise taxes back to the level they were under Clinton, but that’s not quite true.
Under President Obama’s proposal, the top income tax bracket of 35% would be raised to 39.6%. The president has also called for phasing out high-income taxpayers’ itemized deductions, adding another 1.2 percentage points to the effective tax rate, bringing it to 40.8%. Add in the 2.9% Medicare tax next year and the top marginal rate would be 43.7%, roughly equal to what it was during the Clinton years.
But Obamacare would increase the Medicare tax for individuals making over $200,000 and families making over $250,000 per year by 0.9%. While this is technically a payroll tax and not an income tax, it is unlike other payroll taxes in that it is borne entirely by the employee rather than the employer paying half. As a result, the new Medicare tax pushes the top marginal tax rate to 44.6% when combined with other tax increases – nearly a full point higher than it was under Clinton.
In total, that’s a tax increase of 27.4%!!
Sadly, I don’t think many families making more than $250K a year realize that their taxes will spike by more than 27% next year if Obama gets his way. Many, I’m afraid, believe the president when he says he only wants to raise income taxes back to the Clinton days. But it gets worse. The tax rate on dividend income will leap from 15% today to 44.7%.
There is also bad news for capital gains taxes, interest, and other investment income. President Obama, who once famously said he favored higher capital-gains taxes even if they resulted in decreased revenue, would raise taxes on investment income from the current 15% to the 2002 level of 21.2%. But that number ignores the 3.8% Unearned Income Medicare Contribution (UIMC) tax on interest and capital gains that was imposed by Obamacare. Thus, President Obama would really raise taxes on investment income from 15% to 25%, an increase of 67%, far higher than they were under President Clinton.
During the eight years of the Clinton presidency, federal tax revenue averaged 19% of GDP. If President Obama gets all the tax hikes he wants (or at least those he’s told us he wants), taxes would rise to at least 19.8% of GDP, and possibly higher.
Think about it – the economy was booming during most of the Clinton years. Many of us complained back then that the economy would have been even stronger had Clinton not raised taxes, but the economy boomed anyway.
This time around, our economy is weak, unemployment is stuck above 8% and a new recession can’t be ruled out. Some believe we are already there and just don’t know it yet. Even President Clinton said recently that we shouldn’t be raising taxes on anybody in this weak economy – even though Obama made him “walk back” that statement a few days later.
In my E-Letter on Tuesday, I highlighted the new study from Ernst & Young which concluded that at least 710,000 jobs would be lost if Obama raises taxes on “the rich.” I happen to believe it could be a lot more lost jobs, especially if most of the $200K/$250K crowd don’t realize that their taxes are going up by 27.4% next year, along with a 67% increase in taxes on investment income!
For those who were unaware, I hope this helps.
Have a great weekend everyone!
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