MNeagle
1st January 2013, 09:05 AM
On The New Definition Of "Rich", A $620 Billion Tax Hike Offset By $15 Billion
In Spending Cuts, And Much More
Submitted by Tyler
Durden on 01/01/2013 09:49 -0500
Debt Ceiling (http://gold-silver.us/taxonomy_vtn/term/10761)
Gambling (http://gold-silver.us/taxonomy_vtn/term/9715)
Gross Domestic Product (http://gold-silver.us/taxonomy_vtn/term/9219)
New Normal (http://gold-silver.us/taxonomy_vtn/term/11402)
Ohio (http://gold-silver.us/taxonomy_vtn/term/12324)
President Obama (http://gold-silver.us/taxonomy_vtn/term/11020)
Real estate (http://gold-silver.us/taxonomy_vtn/term/12115)
We greet the new year with an America that has a Fiscal Cliff deal. Actually
no, it doesn't - not even close. What it does have
is an agreement, so far only at the Senate level which voted a little
after 2 AM eastern in an 89-8 vote (Nays from Democrats Bennet, Cardin, Harkin,
and Republicans - Lee, Paul, Grassley, Rubio and Shelby), to delay the
all-important spending side of the Fiscal Cliff "deal" which "can is kicked" in
the form of a 60 day extension to the sequester, to be taken up "eventually",
but hopefully not on day 59 at the 11th hour, the same as fate of the all
important US debt ceiling, which remains in limbo, and which now effectively
prohibits America from incurring any new gross debt as the $16.4
trillion debt ceiling was breached yesterday. In other words,
America's primary deficit sourcing mechanism is now put on hiatus, and all new
net debt will come at the expense of defunding various government retirement
funds as the 60 day countdown to the real showdown begins: the debt ceiling, as
well as the resolution of the spending side of the Fiscal Cliff deal.
What did happen last night was merely the legislating of the
inevitable tax hike on the 1%, which was assured the night Obama won the
presidential election, something not even the most rabid Norquist pledge
signatories had hope of avoiding. This was the first income tax hike in nearly
two decades. A tax hike which, regardless of how it is spun, will result in a
drag in consumption. It was also the brand new definition of
rich, with the "$250,000" income threshold now
left in the dust, and "$400,000 for individuals ($450,000 for joint
filers)" taking its place. If you make more than that, congratulations:
you are now "rich". You will also be hated for being part of the 1%.
and be the target in the ongoing class war.
Who knew that "New Normal" would also bring us the "New Rich" definition.
Ironically, not even the tax hike component of the deal was fully worked out,
as it still remains unclear just what the new tax brackets and what the tax
increases for the much maligned 1% will be.
What is generally known is that the Senate bill boils down
to the following (http://politics.blogs.foxnews.com/2013/01/01/senate-fiscal-proposal-620b-tax-hikes-15b-spending-cuts): $620 billion in tax hikes over the next decade offset
by $15 billion in spending cuts now. Hardly "fair and
balanced." Anyone who, therefore, thinks this bill is a slam dunk
in the House is a brave gambling man.
The said, the "good news" is that 99% of Americans will see no change in
their taxes, as was the idea all along. And the evil 1% will get their just
deserts, which was the whole purpose of this relentless soap opera
The bad news is that starting today millions of wage earners, will see a
smaller paycheck as a result of the lapse in the 2% payroll-tax cut, enacted in
2010, which lowered the employee portion of the Social Security tax from 6.2% to
4.2%. The direct cost of the payroll tax expiration will be $125 billion
per year, or nearly a full percentage point of GDP, and in practical
terms, an individual earnings the maximum cap of $113,700 (for 2013), will see
their paycheck drop by $200/month.
That's just the beginning. The WSJ
details (http://online.wsj.com/article/SB10001424127887323635504578214143016765544.html?m od=WSJ_hps_LEFTTopStories)the various other implications of the expiration of the payroll tax
cut:
It will take up to four weeks after a bill is passed for many workers to know
exactly what their 2013 take-home pay will be, according to Michael O'Toole, an
official of the American Payroll Association, a group of 21,000 payroll
managers.
Just before midnight, the Internal Revenue Service issued new withholding
tables for 2013 reflecting the expiration of the 2001-3 tax cuts and the
two-percentage point Social Security tax cut. But the IRS noted that the tables
might change given pending legislation.
The 2013 tax-filing season also is likely to be disrupted by Washington's
wrangling on deadline. In November, acting Internal Revenue Service Commissioner
Steve Miller warned that the filing season would be delayed by several weeks.
Normally the season opens in mid-January, but this year it may be delayed till
mid-February or later.
As a result, many filers won't be able to receive tax refunds as early as
they normally do. "Congress's delays have pushed back the repayment of
interest-free loans to the government for millions of taxpayers," said Lawrence
Gibbs, a former IRS Commissioner now with the Miller & Chevalier law firm in
Washington. The average refund is approaching $3,000, according to IRS
data.
So very much still remains unknown. Here is what is known on the tax side of
the "deal":
Income-tax rates. The top rate on ordinary income such as
wages for joint filers earning more than $450,000 ($400,000 for single filers)
would rise to 39.6%. Current law would be permanently extended for income earned
below that level. Left unclear is whether the $450,000/$400,000 threshold refers
to adjusted gross income (AGI) or taxable income. AGI doesn't include
subtractions for itemized deductions, while taxable income does.
The individual income tax is the government's biggest single source of
revenue, supplying nearly half the total.
Investment tax rates. For joint filers with income above
$450,000 ($400,000 single), the top rate on long-term capital gains and
dividends would rise to 20% from 15%. For taxpayers earning less than the
thresholds, there would be a permanent 15% top rate on long-term capital gains
and dividends, except perhaps for the lowest-bracket taxpayers, who currently
have a zero rate.
Alternative minimum tax. The bill permanently and
retroactively adjusts the alternative minimum tax to stop it enveloping more
taxpayers than designed. The current fix expired at the beginning of 2012.
PEP and Pease provisions. The deal restores and makes
permanent two backdoor tax increases for joint filers with incomes above
$300,000 ($250,000 for singles).
When it was last in effect, the Personal Exemption Phaseout reduced or
eliminated the value of personal exemptions for taxpayers earning more than the
income threshold. The Pease provision—named after the late Rep. Donald Pease
(D., Ohio)—reduced itemized deductions for taxpayers above a certain threshold.
The formula's net effect was to add a bit more than 1% to the top tax rate, says
Mr. Williams of the Tax Policy Center, including the top rate on capital
gains.
Estate and gift tax. The estate and gift tax exemption would
remain $5 million or more per individual vs. the $3.5 million sought by
President Obama. But the current 35% top tax rate on amounts above the exemption
would increase to 40%.
Tax "extenders." This term refers to several provisions that
lapsed either at the beginning or the end of 2012. They would be extended for
varying periods, and provisions that expired in early 2012 would be extended
retroactively. Among these provisions are deductions for $250 of teachers'
classroom expenses; state sales taxes in lieu of state income taxes; tuition and
related expenses; a conservation donation benefit; and the direct charitable
contribution of up to $100,000 of IRA assets for people 70½ and older.
The deal would also extend for five years the American Opportunity Tax
Credit; for many taxpayers this dollar-for-dollar credit is worth up to $2,500
and therefore the most valuable education benefit. And it would extend for five
years the current versions of the Child Tax Credit and Earned Income Tax Credit,
which are claimed by many lower-income workers making up to about $50,000.
Depreciation. A one-year extension of current "bonus"
depreciation rules, which allow businesses to deduct up to 50% of the cost of a
wide variety of property and equipment, excluding real estate. "This will be
very helpful to a lagging economy," says Don Williamson, an accountant who also
heads the Kogod Tax Center at American University.
In other words: congratulations America, you have a Fiscal Cliff deal. Oh
sorry, no you don't. But it does make for even better political grandstanding
and melodramatic theater.
And now, we look forward to late February, early March, when as we said all
along, the real showdown will take place, one which the market will no longer be
able to avoid.
http://www.zerohedge.com/news/2013-01-01/new-definition-rich-620-billion-tax-hike-offset-15-billion-spending-cuts-and-much-mo
In Spending Cuts, And Much More
Submitted by Tyler
Durden on 01/01/2013 09:49 -0500
Debt Ceiling (http://gold-silver.us/taxonomy_vtn/term/10761)
Gambling (http://gold-silver.us/taxonomy_vtn/term/9715)
Gross Domestic Product (http://gold-silver.us/taxonomy_vtn/term/9219)
New Normal (http://gold-silver.us/taxonomy_vtn/term/11402)
Ohio (http://gold-silver.us/taxonomy_vtn/term/12324)
President Obama (http://gold-silver.us/taxonomy_vtn/term/11020)
Real estate (http://gold-silver.us/taxonomy_vtn/term/12115)
We greet the new year with an America that has a Fiscal Cliff deal. Actually
no, it doesn't - not even close. What it does have
is an agreement, so far only at the Senate level which voted a little
after 2 AM eastern in an 89-8 vote (Nays from Democrats Bennet, Cardin, Harkin,
and Republicans - Lee, Paul, Grassley, Rubio and Shelby), to delay the
all-important spending side of the Fiscal Cliff "deal" which "can is kicked" in
the form of a 60 day extension to the sequester, to be taken up "eventually",
but hopefully not on day 59 at the 11th hour, the same as fate of the all
important US debt ceiling, which remains in limbo, and which now effectively
prohibits America from incurring any new gross debt as the $16.4
trillion debt ceiling was breached yesterday. In other words,
America's primary deficit sourcing mechanism is now put on hiatus, and all new
net debt will come at the expense of defunding various government retirement
funds as the 60 day countdown to the real showdown begins: the debt ceiling, as
well as the resolution of the spending side of the Fiscal Cliff deal.
What did happen last night was merely the legislating of the
inevitable tax hike on the 1%, which was assured the night Obama won the
presidential election, something not even the most rabid Norquist pledge
signatories had hope of avoiding. This was the first income tax hike in nearly
two decades. A tax hike which, regardless of how it is spun, will result in a
drag in consumption. It was also the brand new definition of
rich, with the "$250,000" income threshold now
left in the dust, and "$400,000 for individuals ($450,000 for joint
filers)" taking its place. If you make more than that, congratulations:
you are now "rich". You will also be hated for being part of the 1%.
and be the target in the ongoing class war.
Who knew that "New Normal" would also bring us the "New Rich" definition.
Ironically, not even the tax hike component of the deal was fully worked out,
as it still remains unclear just what the new tax brackets and what the tax
increases for the much maligned 1% will be.
What is generally known is that the Senate bill boils down
to the following (http://politics.blogs.foxnews.com/2013/01/01/senate-fiscal-proposal-620b-tax-hikes-15b-spending-cuts): $620 billion in tax hikes over the next decade offset
by $15 billion in spending cuts now. Hardly "fair and
balanced." Anyone who, therefore, thinks this bill is a slam dunk
in the House is a brave gambling man.
The said, the "good news" is that 99% of Americans will see no change in
their taxes, as was the idea all along. And the evil 1% will get their just
deserts, which was the whole purpose of this relentless soap opera
The bad news is that starting today millions of wage earners, will see a
smaller paycheck as a result of the lapse in the 2% payroll-tax cut, enacted in
2010, which lowered the employee portion of the Social Security tax from 6.2% to
4.2%. The direct cost of the payroll tax expiration will be $125 billion
per year, or nearly a full percentage point of GDP, and in practical
terms, an individual earnings the maximum cap of $113,700 (for 2013), will see
their paycheck drop by $200/month.
That's just the beginning. The WSJ
details (http://online.wsj.com/article/SB10001424127887323635504578214143016765544.html?m od=WSJ_hps_LEFTTopStories)the various other implications of the expiration of the payroll tax
cut:
It will take up to four weeks after a bill is passed for many workers to know
exactly what their 2013 take-home pay will be, according to Michael O'Toole, an
official of the American Payroll Association, a group of 21,000 payroll
managers.
Just before midnight, the Internal Revenue Service issued new withholding
tables for 2013 reflecting the expiration of the 2001-3 tax cuts and the
two-percentage point Social Security tax cut. But the IRS noted that the tables
might change given pending legislation.
The 2013 tax-filing season also is likely to be disrupted by Washington's
wrangling on deadline. In November, acting Internal Revenue Service Commissioner
Steve Miller warned that the filing season would be delayed by several weeks.
Normally the season opens in mid-January, but this year it may be delayed till
mid-February or later.
As a result, many filers won't be able to receive tax refunds as early as
they normally do. "Congress's delays have pushed back the repayment of
interest-free loans to the government for millions of taxpayers," said Lawrence
Gibbs, a former IRS Commissioner now with the Miller & Chevalier law firm in
Washington. The average refund is approaching $3,000, according to IRS
data.
So very much still remains unknown. Here is what is known on the tax side of
the "deal":
Income-tax rates. The top rate on ordinary income such as
wages for joint filers earning more than $450,000 ($400,000 for single filers)
would rise to 39.6%. Current law would be permanently extended for income earned
below that level. Left unclear is whether the $450,000/$400,000 threshold refers
to adjusted gross income (AGI) or taxable income. AGI doesn't include
subtractions for itemized deductions, while taxable income does.
The individual income tax is the government's biggest single source of
revenue, supplying nearly half the total.
Investment tax rates. For joint filers with income above
$450,000 ($400,000 single), the top rate on long-term capital gains and
dividends would rise to 20% from 15%. For taxpayers earning less than the
thresholds, there would be a permanent 15% top rate on long-term capital gains
and dividends, except perhaps for the lowest-bracket taxpayers, who currently
have a zero rate.
Alternative minimum tax. The bill permanently and
retroactively adjusts the alternative minimum tax to stop it enveloping more
taxpayers than designed. The current fix expired at the beginning of 2012.
PEP and Pease provisions. The deal restores and makes
permanent two backdoor tax increases for joint filers with incomes above
$300,000 ($250,000 for singles).
When it was last in effect, the Personal Exemption Phaseout reduced or
eliminated the value of personal exemptions for taxpayers earning more than the
income threshold. The Pease provision—named after the late Rep. Donald Pease
(D., Ohio)—reduced itemized deductions for taxpayers above a certain threshold.
The formula's net effect was to add a bit more than 1% to the top tax rate, says
Mr. Williams of the Tax Policy Center, including the top rate on capital
gains.
Estate and gift tax. The estate and gift tax exemption would
remain $5 million or more per individual vs. the $3.5 million sought by
President Obama. But the current 35% top tax rate on amounts above the exemption
would increase to 40%.
Tax "extenders." This term refers to several provisions that
lapsed either at the beginning or the end of 2012. They would be extended for
varying periods, and provisions that expired in early 2012 would be extended
retroactively. Among these provisions are deductions for $250 of teachers'
classroom expenses; state sales taxes in lieu of state income taxes; tuition and
related expenses; a conservation donation benefit; and the direct charitable
contribution of up to $100,000 of IRA assets for people 70½ and older.
The deal would also extend for five years the American Opportunity Tax
Credit; for many taxpayers this dollar-for-dollar credit is worth up to $2,500
and therefore the most valuable education benefit. And it would extend for five
years the current versions of the Child Tax Credit and Earned Income Tax Credit,
which are claimed by many lower-income workers making up to about $50,000.
Depreciation. A one-year extension of current "bonus"
depreciation rules, which allow businesses to deduct up to 50% of the cost of a
wide variety of property and equipment, excluding real estate. "This will be
very helpful to a lagging economy," says Don Williamson, an accountant who also
heads the Kogod Tax Center at American University.
In other words: congratulations America, you have a Fiscal Cliff deal. Oh
sorry, no you don't. But it does make for even better political grandstanding
and melodramatic theater.
And now, we look forward to late February, early March, when as we said all
along, the real showdown will take place, one which the market will no longer be
able to avoid.
http://www.zerohedge.com/news/2013-01-01/new-definition-rich-620-billion-tax-hike-offset-15-billion-spending-cuts-and-much-mo