Higher Taxes Are On The Horizon


The “Bush tax cuts” are slated to expire at the end of 2012. If that happens, taxes would go up next year on most Americans.

The President is adamant that he will never again extend the Bush tax cuts for affluent Americans. If he maintains that view, Republicans either must capitulate to the President and allow taxes to go up on the affluent, or refuse to pass any legislation at all, permitting taxes to go up for everyone. Either way, affluent taxpayers in 2013 will be facing higher taxes.

And the expiration of some or all of the Bush tax cuts is not the end of the story: a new tax under the health care reform law is scheduled to take effect next year. Beginning next year, investment income – such as interest, dividends and capital gains – received by families with total income above $250,000 will be subject to an additional tax of 3.8%. This new 3.8% tax will not apply to non-taxable income, such as tax-exempt municipal bond interest, and it will not apply to money taken out of retirement plans, like IRAs and 401(k)s.

When you add the expiration of the Bush tax cuts to the new 3.8% tax on investment income, you’re looking at an extraordinary tax increase on affluent taxpayers next year- the top tax rate on ordinary income going up from 35% to almost 44%, the top tax rate on capital gains going from 15% to almost 24% and the top tax rate on dividends going from 15% to almost 44%.

We’re also looking at a change in the estate tax. This year, any American can give away $5,000,000 lifetime without any gift or estate tax consequences. If that is not extended, next year the lifetime estate tax exemption drops back to $1,000,000.

And all of this happens if nothing happens. If Congress passes no legislation at all, this will be our tax system in 2013.