Paul L. Caron

Monday, July 2, 2012

WSJ: The 3.8% Roberts Tax on Investment Income Kicks in on Jan. 1, 2013

WSJ ObamaCareWall Street Journal:  Get Ready for the New Investment Tax, by Laura Saunders:

It really is happening.

Until this week, investors were waiting to see what the Supreme Court would do about the 3.8 percentage-point surtax on investment income, part of President Obama's health-care overhaul. The IRS hasn't yet released guidance on the new tax.

So when the court affirmed the law on Thursday, investors—and tax advisers—started scrambling.

The new tax, which Congress passed in 2010, affects the net investment income of most joint filers with adjusted gross income of more than $250,000 ($200,000 for single filers). Starting on Jan. 1, 2013, the tax rates on long-term capital gains and dividends for these earners will jump from their current historic low of 15% to 18.8%, assuming Congress extends the current law.

If, on the other hand, Congress allows the tax rates set in 2001 and 2003 to expire on Dec. 31—an unlikely scenario, according to many experts—the top rate on capital gains will rise to 23.8% and the top rate on dividends will nearly triple, to 43.4%.

Whatever the fate of the 2001-03 tax rates, advisers are telling clients to start making moves to minimize the new levy. ...

Here are answers to some basic questions about the tax:

  • How does the 3.8% tax on investment income work?
  • How is "investment income" defined?
  • What are some examples of when the tax would and wouldn't apply?
  • How would the 3.8% tax apply to the sale of a principal residence?
  • What happens if a taxpayer has adjusted gross income above the threshold that is then reduced by a large itemized deduction—such as for medical expenses or a charitable gift?
  • Does the 3.8% tax apply to trusts and estates?
  • Doesn't the health-care law also have an extra payroll tax for higher earners?

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Yes roberts rewrote the law to change it from an illegal mandate to a legal tax. but dont just blame Roberts for this. Remember the Obama solicitor general officially argued before the court that it was a tax. So Obama flip flopped when he came before the court, and stated that a law he had explicitely stated was a mandate/penalty, and wrote as a mandate/penalty, was now instead a tax, in order to get the decision he wanted. Now Obama has flip flopped again, and is again calling it a mandate/penalty, even when he still publically states that the Roberts decision, officially calling it a tax, is a valid decision. When somebody says 2 different contradictory things at the same time, the polite term is condradiction, the more acurate term is lie or fraud. Presiedent Obama, make a truthful choice, either your law is a tax, or it it is not, then it is unconstitutional, you cant truthfully say both. The huge mistake Roberts made is he allowed the admin to argue this contradictory drivel. He should have forced the admin solicitor general to choose only one option at oral argument, either tax or mandate, and insist the admin state that choice as the legal position of the president. Instead, he let the admin lie and talk out of both sides of their mouth, and then became activist legislator and selected one of the 2 contradictory positions that most favored upholding the law. Basically Roberts is a coward, and Obama is a 2 faced liar.

Posted by: richard40 | Jul 3, 2012 7:56:07 AM

Um, I'm pretty sure this part was always written as a tax. I'm also pretty sure it will be enforced like the rest of the income tax.

Posted by: the real anon | Jul 2, 2012 12:49:27 PM

At a time when the inefficient IRS bureaucracy is already stretched beyond its limits, some additional taxes on couples earning more than $250K may require half a dozen more employees. These are the people who can be relied on for voluntary compliance -- or at least, won't be cheating any more than usual.

Posted by: Bob | Jul 2, 2012 10:03:27 AM

The answers to the basic questions are at the link, am I the only one who clicked through?

Posted by: Steve2 | Jul 2, 2012 10:02:17 AM

"The Supreme Court wrote the law, now let's see them enforce it."

Correction: Congress wrote the law; the President signed the law as it was presented to him.

And then SCOTUS (Actually, Roberts personally, for all practical purposes) rewrote the law as a tax, which it carefully and explicitly was NOT before.

Posted by: Deoxy | Jul 2, 2012 9:53:49 AM

As Dred Scott was to CJ Taney, so shall the Obamacare decision be to CJ Roberts.

Posted by: Jake | Jul 2, 2012 9:52:24 AM

I see the 7 questions, but no "answers to some basic questions about the tax".

Posted by: conrad | Jul 2, 2012 8:39:12 AM

Anthony,Thats what the 16,500 new agents being hired are for dontcha know.

Posted by: Rich K | Jul 2, 2012 8:29:57 AM

"The Supreme Court wrote the law, now let's see them enforce it."

Correction: Congress wrote the law; the President signed the law as it was presented to him. The Supreme Court only interpreted the law based on the administration's argument that the mandate was a "tax". It is up to the admin to enforce the law, and my guess is that they will actually follow the law of the land in this case.

Posted by: John Pacorn | Jul 2, 2012 6:54:44 AM

'Here are answers to some basic questions about the tax:'

Ummm, I see only questions - or is that the point?

Posted by: Bill Johnson | Jul 2, 2012 6:50:40 AM

At a time when the IRS is absolutely stretched to its limit. It's all overworked. Appeals, collections, assessment and an offshore compliance department that has yet to clear our OVDI's we submitted in December 2009!!!

The system is vastly overburdened as it is right now.

The Supreme Court wrote the law, now let's see them enforce it.

Posted by: Anthony Parent | Jul 2, 2012 5:06:24 AM