These are the Obama tax hikes that will really hurt

While President Obama and Speaker Boehner have been talking about what to do about tax rates on labor income, little has been said about the rise in dividend and capital gains tax rates — and how they intersect with the sky-high U.S. corporate tax rate. Ernst & Young:

Taking into account both the corporate and investor level taxes on corporate profits and state level taxes, the United States has among the highest integrated tax rates among developed countries and these integrated tax rates will rise sharply in 2013:

– The current top US integrated dividend tax rate of 50.8 percent will rise to 68.6 percent in 2013, significantly higher than in all other OECD and BRIC countries.

– The current top US integrated capital gains tax rate of 50.8 percent will rise to 56.7 percent in 2013, the second highest among OECD and BRIC countries.

And here is why that is a bad thing, according to Ernst & Young:

Most developed countries provide relief from the double tax on corporate profits because it distorts important economic decisions that waste economic resources and adversely affect economic performance:
– It discourages capital investment, particularly in the corporate sector, reducing capital formation and, ultimately, living standards.
– It favors debt over equity financing, which may result in greater reliance on debt financing and leave certain sectors and companies more at risk during periods of economic weakness.
– A tax policy that discourages the payment of dividends can impact corporate governance as investors’ decisions about how to allocate capital are disrupted by the absence of signals dividend payments would normally provide.

Now Obama has mentioned cutting the corporate rate to 28%, but that move would leave the integrated capital gains rate more or less unchanged and the dividend rate sharply highe’

As E&Y point out, a) the top federal income tax rate on dividends will increase from its current level of 15 percent to 39.6 percent in 2013; b ) the  top federal income tax rate on long-term capital gains will rise from its current level of 15 percent to 20 percent in 2013; c) For many taxpayers, both dividends and capital gains will also become subject to the additional 3.8 percent Medicare tax in 2013 due to changes under the Affordable Care Act of 2010.

19 thoughts on “These are the Obama tax hikes that will really hurt

  1. Honestly, I am not as worried about the capital gains and corporate tax hikes as I am about the planned FICA and AMT hikes.

    FICA will go up 2% at the end of the year, meaning an additional $1,001 in taxes for the average middle-class worker. Also, Medicare Tax is due to rise 0.9% (or $450 per year). Additionally, the Alternative Minimum Tax due will be some $3,700. Considering the average tax return is $3,000, it means tax payers are going to be scrounging for cash. Basically, the Middle Class will have some $5,151 in additional taxes to pay this year.

  2. Everyone (besides Boehner and Jimmy P.) acknowledges that the Ernst study is a crock, and why are we listening to them anyway as an arbiter in this debate?

    BTW, Jon, FICA is not “going up.” That was a temporary goose in the midst of a recession, a gift no one could keep. It’s high time the funding was restored.

    • Yes. Yes it is going up. The rate was cut, and now it will rise again. That is a tax going up. Doesn’t matter if the cut was temporary. The rate is rising. The average working man will have to pay $1,001 more in FICA next year than he did this year. I don’t care how you want to sugar coat it: it’s a tax hike. Whether or not you think higher taxes on the Middle Class are needed, it is a tax hike. Plain and simple.

  3. Last time I looked, the S&P 500 companies were holding $1 trillion in cash. So which is the problem: capital formation or stirring up enough demand to put it to work?

  4. Since Boehner is preoccupied with trying to roll over for Obama on income taxes and Obama is too cunning to actually accept yes for an answer, we can pretty much rest assured that every tax cut scheduled to expire will do so.

  5. Anyone else catch this CNBC story?

    Wealthy Dump Assets Amid Worries About Going Over ‘Cliff’

    Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

    Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.‘…

    I wonder what the ramifications of this might be?

  6. As a business owner, I can tell you what has had the economy stalled for the last 6 years. From the moment the Dems took control of both houses of Congress in 1006, they have promised to eliminate the “Bush tax cuts” (all of them), with the result that business owners cannot know with any certainty what their taxes (business costs) will be, even in the short term. It is now November 13th, 2012, and I do not know what my taxes will be just six weeks from now. How can I plan? How can I hire anyone if I have no idea what my costs will be. The Dems, still in control, have promised to raise my taxes. I would be stupid to expand and hire under those conditions.

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