Like it or not, our taxes are going up! The widely advertised $400,000 / $450,000 income threshold for the 2013 tax increase is a lie! Taken together, the majority of the increased tax burden will fall squarely on working families making a bit more than $250,000 per year.
Superficially, the advertised increase seems clear enough: raise the highest tax bracket from 35% to 39.6% and apply the increase to singles making $400,000 and to couples making $450,000. I found this both palatable and unlikely to affect me anytime soon. Unfortunately, this is simply the smelly hors d’oeuvre of an otherwise putrid meal being forced upon American taxpayers.
The middle class gets hit hardest by two so-called ‘backdoor’ tax increases. The personal exemption, slated to be $3,900 in 2013 (for each taxpayer and dependent) will now phase-out beginning at $250,000 for singles and $300,000 for couples. This exemption disappears altogether at Adjusted Gross Income levels of $372,500 for singles and $422,500 for couples. A middle class taxpayer with a spouse and 2 dependent children will lose part or all of a $15,600 exemption.
The second shot at the middle class is the Pease provision, named for former Rep. Don Pease (D., Ohio). Pease is an arcane limitation on all itemized deductions, including charitable donations and mortgage interest. This little known provision eliminates virtually 80% of itemized deductions for taxpayers above the $250,000 (single) $300,000 (couple) thresholds, effectively adding 1 percentage point to the top marginal tax rate.
Congress and the President have also let expire the two-percent cut in the employee portion of the Social Security tax. For the past two years, working taxpayers have paid 4.2 percent in Social Security contributions. In 2013, this will go back up to 6.2 percent, while the income cap up to which it is levied will rise from $110,100 to $113,700. That’s raising the rate and broadening the base.
There’s more: the Capital Gains maximum and Estate tax rates are both going up too!
So who wins? Tax preparers (CPAs and Attorneys) and big-government politicians, who thrive on spending other folks’ money less efficiently than they would spend it themselves. And the 40% to 50% of Americans who pay no income tax all. Now, it’s your dirty little secret too.