Forget income tax — keep your eye on Capital Gains
Our national debates about taxation always focus on personal income tax and, sometimes, corporate income tax.
Those are political shiny objects... most people have paid income tax and know what it is.
Where the rubber meets the inequality road, however, is capital gains. That's the rate the mega-rich care about. That is what the Bush tax cuts were about in the first place.
Rich people tend not to show a lot of taxable income. That's what accountants are for. The money coming in is usually capital gains, and taxed much lower than income. That's why Romney pays 14%.
Currently long-term capital gains and qualified dividends are taxed at 15 percent. If the Bush tax-cuts expire the maximum long-term capital gains rate will increase to 20% (18 % on assets held for over 5 years) and dividends will go back to being taxed at ordinary income rates. For the typical idle-rich person that lives on dividend income from their multi-multi-million stock portfolio that means their dividend tax rate will almost triple, from 15% to about 40%. That's why the fat-cats squeal... not the 4.6% increase in the top income tax marginal rate.
(I do not know whether such a jump in taxation of dividends would have undesirable results in the market. It seems to me that it would favor speculative stocks over steady companies. I would probably increase cap-gains a bit more and retain some of the dividend tax discount, but that's a side-ways issue for another day.)
The Administration says the current 0% and 15% rates on long-term capital gains and qualified dividends will be left in place except for married couples with income above $250,000 and unmarried individuals with income above $200,000.
If the Republican Party was capable of negotiation they would give in on income tax in exchange for keeping the low cap gains and dividend tax rates because those are what is of interest to the super rich. (They would sell out the upper-upper middle class for the mega-rich.)
Keep your eye on those non-income taxes because that is where the real battle will be waged.
= new reply since forum marked as read
This seems a good run-down, despite the editorialization. (Like "yikes!"
The additional 3.8% Medicare tax will not apply unless your adjusted gross income (AGI) exceeds: (1) $200,000 if you're unmarried, (2) $250,000 if you're a married joint-filer, or (3) $125,000 if you use married filing separate status.
The additional 3.8% Medicare tax will apply to the lesser of your net investment income or the amount of AGI in excess of the applicable threshold. Net investment income includes interest, dividends, royalties, annuities, rents, income from passive business activities, income from trading in financial instruments or commodities, and gains from assets held for investment like stock and other securities. (Gains from assets held for business purposes are not subject to the extra tax.)
For example, a married joint-filing couple with AGI of $265,000 and $60,000 of net investment income would pay the 3.8% tax on $15,000 (the amount of excess AGI). If the same couple has AGI of $350,000, they would pay the 3.8% tax on $60,000 (the entire amount of their net investment income).
http://www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/
Scare the retired folks stuff.
From Krugman: http://krugman.blogs.nytimes.com/2012/01/18/the-history-of-capital-gains-taxes/
