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Obama Raises Tax Rates on Top Earners Instead of Renewing Tax Cuts
February 16, 2010
Topic: New Legislation and Your Taxes
The tax cuts that former President George W. Bush enacted will expire at the end of 2010. While some people would continue to enjoy these tax cuts, others would not, under the budget plan proposed by President Obama. Individuals earning more than $200,000 a year ($250,000 for married couples) will return to top marginal tax rates of 36% and 39.6% from 33% and 35% at present.
Taxes on high-income earners will likely raise $1 trillion over the next 10 years and the current administration is looking for every penny it can find to pay back the deficit that it is accumulating. President Obama is, therefore, foregoing a renewal on tax cuts for top income earners as set forth in a new budget plan proposed on Monday February 1, 2010.
Below are some aspects of the proposed new budget plan that would increase income tax rates and directly affect top income earners:
1. Top marginal tax rates would rise from the 33% and 35% now to 36% and 39.6%.
2. Capital gains and dividends would be taxed at 20% instead of 15%.
3. Limits would be imposed on upper-income earners' abilities to claim personal exemptions itemized deductions.
4. Fund managers would see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate that is currently in place.
5. Limits would be put on the use of family trusts that have helped wealthy families lower their estate-tax liabilities. This tax increase was proposed after the White House estimated that it would increase government revenue by $23.7 billion over the next 10 years.
6. Estate tax of 45%, with an exemption for estate wealth under $3.5 million, and extension of those rates permanently.
President Obama did try to sweeten the deal for middle income tax earners, though, by requesting the payroll tax credit that lined workers pockets last year be made permanent. Mr. Obama reconsidered, however, and the final proposal put forth on Monday had dropped this particular request.
Time will tell how this year's budget plan will fare in the House and Senate. Last year's proposal passed in the House, but was halted in the Senate by both parties due to worry about the results the proposal would have on entrepreneurship and investment. The proposal was also met by resistance from realtors, charities, lawmakers, and other powerful, wealthy individuals.
