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Monday, December 10, 2012

NY Times: Tax Arithmetic Shows Top Rate Is Just a Starter

Sunday New York Times front page story, Tax Arithmetic Shows Top Rate Is Just a Starter:

Despite hints in recent days that President Obama and House Speaker John A. Boehner might compromise on the tax rate to be paid by top earners, a host of other knotty tax questions could still derail a deal to avert a fiscal crisis in January.  

The math shows why. Even if Republicans were to agree to Mr. Obama’s core demand — that the top marginal income rates return to the Clinton-era levels of 36 percent and 39.6 percent after Dec. 31, rather than stay at the Bush-era rates of 33 percent and 35 percent — the additional revenue would be only about a quarter of the $1.6 trillion that Mr. Obama wants to collect over 10 years. That would be about half of the $800 billion that Republicans have said they would be willing to raise. That calculation alone suggests the scope of the other major tax issues to be negotiated beyond tax rates. ...

Yet both parties seem poised to confront that opposition because they want a budget deal to commit Congress and the White House to overhaul the tax code next year. That is another reason Mr. Obama wants to have the top rates as high as possible: The lower the rates now, the harder it would be to raise revenues next year in overhauling the code.

Variations on Obama’s Tax Plan

New York Times:  New Taxes to Take Effect to Fund Health Care Law:

For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.

The new levies, which take effect in January, include an increase in the payroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.

Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.  

To help finance Medicare, employees and employers each now pay a hospital insurance tax equal to 1.45% on all wages. Starting in January, the health care law will require workers to pay an additional tax equal to 0.9% of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly. The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.

Ruth M. Wimer, a tax lawyer at McDermott Will & Emery, said the taxes came with “a shockingly inequitable marriage penalty.” If a single man and a single woman each earn $200,000, she said, neither would owe any additional Medicare payroll tax. But, she said, if they are married, they would owe $1,350. The extra tax is 0.9% of their earnings over the $250,000 threshold.

(Hat Tip: Mike Talbert.)

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