The rallying cry of the Tea Party movement of fiscal conservatives, libertarians, and independents over the last year has been T.E.A: “Taxed Enough Already.”
Democrats have stubbornly maintained that you are N.T.E.: Not Taxed Enough.
Rich Lowry outlines the grim forecast of tax hikes forever in the Age of Obama:
It doesn’t take an economist to understand what public debt at Greece-like levels of 90 percent of GDP by 2020 inevitably portends. Nor to realize the effects of the yawning disconnect between federal spending at 24 percent of GDP and revenue at 19 percent of GDP. Nor to understand the most basic of all budgetary concepts — that the bill, after the fizzy party, after all the huzzahs over “making history,” always comes due, and with interest.
This is why the country has a roiling tax revolt prior to the imposition of any significant tax increases. The tea-party movement is an act of pre-emption, based on the simple calculation that higher spending eventually means higher taxes. For all the tsk-tsking about its supposed irresponsibility, the movement is attuned to the future in a way that the president — who hopes to evade or hide the consequences of his budgetary choices for as long as possible — is not.
Obama has always been happy to boast that he’ll let the Bush tax cuts on high-end earners expire at the end of this year. This blow for justice will initially generate all of about $40 billion annually, or only about 5 percent of the cost of Obama’s stimulus bill. Over 10 years, it will raise almost $700 billion, or only enough to cover about half of the budget deficit this year alone.
Obama will need more, and he’s not going to get it all from “the rich.”
That’s for sure.
The Joint Committee on Taxation, the congressional scorekeeper on America’s tax burden, reports that the middle-class will get hit with a $3.9 billion tax increase in 2019 from Demcare alone.
The Hill reports:
Taxpayers earning less than $200,000 a year will pay roughly $3.9 billion more in taxes — in 2019 alone — due to healthcare reform, according to the Joint Committee on Taxation, Congress’s official scorekeeper.
The new law raises $15.2 billion over 10 years by limiting the medical expense deduction, a provision widely used by taxpayers who either have a serious illness or are older.
Taxpayers can currently deduct medical expenses in excess of 7.5 percent of their adjusted gross income. Starting in 2013, most taxpayers will only be able to deduct expenses greater than 10 percent of AGI. Older taxpayers are hit by this threshold increase in 2017.
Once the law is fully implemented in 2019, the JCT estimates the deduction limitation will affect 14.8 million taxpayers — 14.7 million of them will earn less than $200,000 a year. These taxpayers are single and joint filers, as well as heads of households.
“Loss of this deduction will mean higher taxes for 14.7 million individuals and families making under $200,000 a year in 2019,” Sen. Chuck Grassley (R-Iowa) told The Hill. “The new subsidy for health insurance would not be available to offset this tax increase for most of these households.”
Kevin Hassett explains how the Demcare tax on dividends and the looming repeal of Bush tax relief is another broken Obama promise will punish investors:
During the 2008 campaign, Obama promised that he would not lift the tax rate on dividends above 20 percent, for anybody, regardless of income. If Democrats intended to respect that promise, they would have said so in the paygo rule. The odds are high that the dividend tax is going up. Way up.
How far? Unless congressional Democrats decide that an Obama promise should appear to have some meaning, dividends will go back to being treated as ordinary income for those with incomes above $250,000. That means that those in the top bracket, people who hold the majority of dividends, will pay 39.6 percent tax.
The tax fun does not end there. The health-care legislation that fulfilled the dreams of so many Obama supporters slaps an extra 3.8 percent tax on investment income.
This dividend tax change is big news for markets. Equities, after all, have value in part because they pay dividends. Right now, a taxable investor in the U.S. should be willing to pay 85 cents for every expected dividend dollar. If taxes revert to pre-Bush levels — and assuming some other changes, such as Obama limiting itemized deductions — that drops to 55.4 cents.
More on the dividend tax from The Street:
Richard Taylor, a principal at HLB Gross Collins, an Atlanta-based accounting and consulting firm, says the new health-care bill could lead to a quadrupling of taxes on what’s currently assessed on dividends.
For the past seven years, qualified dividends have had a federal tax rate of 15%. In 2013, health-care reform will add an additional 3.8% Medicare tax to all dividends, interest, capital gains, annuities, royalties and rental income for joint taxpayers with adjusted gross incomes of $250,000 and single taxpayers with incomes of $200,000.
In addition, if the current tax law reverts back to the 2000 tax system and rate schedules at the end of 2010 when the Bush tax cuts expire, dividend income will no longer be taxed as a special category of income — capital gains — but considered ordinary income, Taylor says. This means that in 2013, federal taxes on dividends — adding the higher income rate and Medicare tax — could total 43.4%. When you factor in additional state taxes (typically in the range of 6%, but as high as 10%), dividends could be taxed as high as 49.4% or even more depending on where you live.
That’s on top of President Obama’s plans to hike the capital gains tax rate from 15 to 20 percent. More from the WSJ on the tax bite for top earners.
Forbes has some practical advice after you’re done cursing: “The Obama Tax Hikes–What to Do.”