Tax on rich will bring in 63.67B per year

[dex]

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_XNvdxZ6vtk&refer=home

Higher-income earners, primarily families with more than $250,000 of income, would face an additional tax burden under a proposal to reinstate limitations on their itemized deductions, which would subject more of their income to tax. In all, top- earning households would pay $636.7 billion in additional taxes over the next decade, Obama’s budget estimates.

+++++
It doesn't say if the 250K is indexed for inflation. So, like the AMT, more people will be paying the higher rates in the future.
This is the answer I wanted = 63.67B/year but it appears that this money will realistically be going to:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aB4axwgbnT2E&refer=home

Obama Pledges $634 Billion for Health Care, Says More Is Needed

++++++
Deficit
10 trillion and counting
Federal Budget Spending and the National Debt

+++++++++++++

I really don't care much about any of these issues any more.
I don't make 250K and I don't think there is any hope that the federal budget will get under control.

But now that we know the number and where the money is going, maybe we can move on.

 

[audreyh1]

Glad I don't itemize deductions, and I haven't for a very long time. The current standard deduction is quite generous. Oh - I usually end up paying AMT anyway which pretty much throws all the rest of the tax code after all.

Actually, I think I can manage the income from investments to stay under that magic $250K per year. Maybe. It's the cap gains that usually get me. I suspect mutual funds will be limited in their cap gains going forward for while. LOL!

Audrey

 

[newporttony]

It's unclear whether the $250K is single or joint (my guess is that it will be based on joint income). Inflation could easily put a lot of people in that catagory over time. Similar to how the AMT really stuck it to the "rich".

 

[audreyh1]

I expect it's very safe to assume this is married filing jointly which is usually the "default" assumption on income taxes.

Audrey

 

[MasterBlaster]

It's unclear whether the $250K is single or joint (my guess is that it will be based on joint income). Inflation could easily put a lot of people in that catagory over time. Similar to how the AMT really stuck it to the "rich".

I suspect that for singles the threshold will be significantly lower than $250k. Perhaps it would be as low as half that amount ($125k) for the increased taxes.

As always the devil is in the details.

 

[CuppaJoe]

I wondered what my former employer would do with the salary and bennies he used to pay me when he decided not to replace me with with a paid employee.

 

[cardude]

Looks like I picked a good time to go out of business! I won't have to worry about that pesky income anymore!

Glad I don't itemize deductions, and I haven't for a very long time. The current standard deduction is quite generous

If you have less than 250K in total income it looks to me like you will still get to still use all your itemized deductions, so why are you saying you are glad you don't itemize?

 

[FIREd]

Higher-income earners, primarily families with more than $250,000 of income, would face an additional tax burden under a proposal to reinstate limitations on their itemized deductions, which would subject more of their income to tax. In all, top- earning households would pay $636.7 billion in additional taxes over the next decade, Obama’s budget estimates.

I don't like that word "primarily"... Too much uncertainty for those of us right under the $250,000 limit.

So to summarize, if your are "rich": fewer deductions = a larger portion of your income will be subjected to income taxes. Taxes on that income will be higher (going back to the 36 and 39.5% tax brackets). And LT capital gain/dividend taxes will go back to 20%.

I thought that we ALL had to make sacrifices to get out of this crisis. What sacrifices are been asked of the middle class may I ask? Sounds like a one-way gravy train and I am going in the wrong direction.

At this point, it looks like we have to do anything possible to stay below the $250K cutoff. My wife and I have been talking about the possibility of me retiring early. With this new tax code, it just doesn't seem worth it for me to continue working.

 

[newporttony]

At this point, it looks like we have to do anything possible to stay below the $250K cutoff. My wife and I have been talking about the possibility of me retiring early. With this new tax code, it just doesn't seem worth it for me to continue working.

Hmmm...I thought higher taxes had no impact on behavior. Is it possible that higher tax rates could actually produce less revenue

 

[samclem]

One problem is that there's no way to take enough from just those evil rich folks to sate Washington's appetite for more money. From this article:

. . . as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

And remember, 2006 (that most recent year for which figures were available) was a year in which the economy was humming. Given all the economic woes we're having in 2009, does anyone think the richest 1%-2% of people will have higher incomes in 2009 than they had in 2006? More importantly--does anyone think taking this money out of the productive sectors of the economy at this time will help them be more productive?

I wonder just how bad it will have to get before people are ready to again vote for less government.

 

[Rustic23]

When 636B is not enough, they will come after you next!

 

[youbet]

It's unclear whether the $250K is single or joint (my guess is that it will be based on joint income). Inflation could easily put a lot of people in that catagory over time. Similar to how the AMT really stuck it to the "rich".

It's not unclear. It's defintiely joint. The limit is $125k for single filers.

 

[Independent]

One problem is that there's no way to take enough from just those evil rich folks to sate Washington's appetite for more money. From this article:

And remember, 2006 (that most recent year for which figures were available) was a year in which the economy was humming. Given all the economic woes we're having in 2009, does anyone think the richest 1%-2% of people will have higher incomes in 2009 than they had in 2006? More importantly--does anyone think taking this money out of the productive sectors of the economy at this time will help them be more productive?

I wonder just how bad it will have to get before people are ready to again vote for less government.

I couldn't open the link, but I think I was able to match the numbers at the IRS website: http://www.irs.gov/pub/irs-soi/06in35tr.xls

Note the missing information in the article. The 2010 spending is compared to the 2006 taxable income only for the $75,000 plus filers.

What about the under $75,000 group? What was their income?
It totaled $1.6 trillion. So if the $75,000+ can't support the gov't, certainly the under $75,000 have no hope. We'd have to tax them at 250%.


The 2006 GDP was about $13.2 trillion (I don't know what the projected 2010 GDP is). In 2006, only 42% of GDP shows up as "taxable income" on individual returns. So when you compare federal spending, which is more that 20% of GDP, to taxable income, you're going to get big numbers.


These are my totals from the IRS table, dollar amounts are in $1,000s
Sum of $0 - $75,000
Number of Returns: 79,431,020
Taable Income: $1,579,922,939
Tax: $210,813,787


Sum of $75,000 and above
27,227,753
$3,999,182,294
$850,469,576


Total
106,658,773
$5,579,105,233
$1,061,283,363

 

[Texarkandy]

I've no doubt within the next 4 years the ceiling on FICA will be done away with also - probably in conjunction with the establishment of a floor (i.e. - no FICA for 1st 25k of earnings).

Wouldn't be overly surprised to see an attempt to impose FICA on passive income as well if we keep going down this "share the wealth" road.

I don't think FICA is "progressive" enough for the Progressives.

 

[kumquat]

Get ready for Canadian rates on income tax. When it happens, all we Canucks will envy is your (southern) winter weather.

 

[FIRE'd@51]

As I understand it, if you fall into the 33% bracket or higher ( 208.85K for joint filers and half that for single filers), the mortgage interest deduction and charitable contributions will be treated as if you were in the 28% bracket.

It appears that Mr. Obama et al have come up with a tax plan that will hurt housing at the margin and will also hurt charities who are already facing reduced contributions in this recession.

From the WSJ

For the 2009 tax year, the 33% tax bracket starts with couples with taxable earnings of $208,850, when adjusted for personal exemptions and various deductible expenses. A taxpayer in the top bracket paying $1,000 of mortgage interest, for example, would see a tax break worth $350 reduced to $280.

 

[haha]

It's the cap gains that usually get me. I suspect mutual funds will be limited in their cap gains going forward for while. LOL!
Audrey

Very much the same for me. There is a cost to being wary of capital gains though- I at least tend to leave profitable but arguably overpriced positions in place to avoid realizing gains. Then Kapow! No more gains to worry about.

Ha

 

[dex]

How does this all relate to Early Retirement?
There will be a lower percentage of workers that will be able to do it in the future - except US Federal workers with a pension.

For those of use who are ER - at let's say my age 54 and older - we were able to due it due to unique circumstances:
1. Post WWII growth
2.1st half of the baby boomers
3. Low tax rates
4. Strong stock market (OK except for recent action)
5. Beginning of transition to global trade.

Those factors most likely will not be replicated in the future - so lower percentage of people being able to ER.

What will those that follow have to deal with?
1. Low GDP growth
2. 1st half of baby boomers staying in their jobs - (fewer opportunities for advancement)
3. High tax rates
4. Meandering stock market
5. Global trade - holding down wages and opportunities

 

[ziggy29]

How does this all relate to Early Retirement?
There will be a lower percentage of workers that will be able to do it in the future - except US Federal workers with a pension.

Federal workers? Since FERS that's been less of an issue; I think the retirement plan for new federal employees is reasonable and does follow the old "three-legged stool" of retirement. It's really the state and local employees who are more secure, assuming their dire situations are bailed out by taxpayers, many of whom have no such deal and see their 401Ks cratering.

When my wife was applying for a library job with the county, we heard how their pension plan worked. The employee puts in 7% of pay. The employer matches 170% of that amount AND the state guarantees a 7% return on the contributions.

Wow -- a $1.70 match per dollar and a sure-thing 7%? Must be nice. Really bummed me out when she didn't get it after I read about their pension plan...

 

[newporttony]

A young women in my office said she and her friends have been discussing how to pay for Obama's government programs and have concluded that the most effective way of funding everything is simply to have everyone with > $5 million of wealth contribute the excess to the government. I kid you not--she really thinks this makes sense.

Who knows, maby we will get there. Many the number will be $10 mil or maby it will be $2 mil. There are really people that believe they can just create wealth by pulling a lever in a voting booth.

 

[kumquat]

A young women in my office said she and her friends have been discussing how to pay for Obama's government programs and have concluded that the most effective way of funding everything is simply to have everyone with > $5 million of wealth contribute the excess to the government. I kid you not--she really thinks this makes sense.

Who knows, maby we will get there. Many the number will be $10 mil or maby it will be $2 mil. There are really people that believe they can just create wealth by pulling a lever in a voting booth.

If I was an American who had that kind of money and I believed that that outcome would come to pass, I'd be long gone.

Disclaimer: I'm not a Merckin, I don't have that kind of $ and I don't believe it will happen.

 

[HornedToad10]

I guess they are re-incentivizing SAH(M/D). Pay higher taxes and still have to pay a fortune for Child care, no thank you... (I'm not close to that number yet, but we're still very young)

 

[ziggy29]

I guess they are re-incentivizing SAH(M/D). Pay higher taxes and still have to pay a fortune for Child care, no thank you... (I'm not close to that number yet, but we're still very young)

You know, that wouldn't surprise me, seriously.

Social Security, as I mentioned the other day, is believed by many as being originally motivated by getting older folks out of the work force to create more job openings for others and reduce involuntary unemployment.

Perhaps if you make it punitive to be a two-income household -- especially with two healthy incomes -- maybe this would be a financial incentive to have a stay-at-home parent.

The only problem with that argument is that in the days of low job security, being a one-income couple puts you at much greater risk of total ruin in the case of a job loss. For some people, especially in this economy, that might be enough of an incentive.

 

[thefinancebuff]

The proposed higher income penalty is for married filing jointly at $250k and for single at $200k. I agree if you are single and you earn $200k, you can be recognized as having an upper income. If both spouses work and earn $125k each, especially in high cost of living areas, they are not rich at all. Full text of the budget outline is here:

http://www.whitehouse.gov/omb/asset.aspx?AssetId=793

The three tax increase proposals are on page 129.

1. reinstate the 36 percent and 39.6 percent rates for those taxpayers earning over $250,000 (married) and $200,000 (single)
2. reinstate the personal exemption phaseout and limitation on itemized deductions for those taxpayers earning over $250,000 (married) and $200,000 (single)
3. Impose 20 percent rate on capital gains and dividends for those taxpayers earning over $250,000 (married) and $200,000 (single)

 

[laurence]

As DW and I are within 60k of this number this year (projected) we are:

a) extremely grateful to be so gainfully employed but

b) more fearful of all the current deductions etc. that have faded away on us. We just did our taxes and instead of a fat return, this year we would have had to write a check had we not plunked money into DW's SEP IRA. So while the higher tax bracket at $250k will probably get us soon (we're only in our early 30's) I think all the phase outs and AMT is what's really going to hurt us, since after all, these brackets are on the margin.

We live in a high cost area where even now 300k doesn't get you much of a house, and 600k isn't that much nicer.