Get ready for higher taxes, especially if you're wealthy. It's increasingly looking like the tax party is winding down, and you can blame the national deficit. Projected to reach a two-year cumulative total of $2.5 trillion in 2012, according to Bloomberg, the Obama Administration is looking for ways to raise revenue and pay the piper.
Rates on capital gains, dividends and income are already scheduled to increase in 2013, after the extension on the Bush-era tax cuts runs out on the last day of 2012. Unless Congress acts before then, the capital gains and dividends rate will increase from 15 percent to 20 percent. In addition, President Obama is calling for the top tax bracket for those earning $250,000 or more to increase from 35 percent to 39.5 percent. Those in the top income bracket will also be charged an extra tax on unearned income to pay for health care reform.
The super-rich are no doubt thinking about moving wealth now to circumvent some of the looming tax increases; in some cases their heirs may benefit sooner rather than later. Until the end of 2012, individuals are allowed to gift up to $5 million without paying tax, but when that benefit expires, the gift tax exclusion will revert to $1 million. So there could be some shifting of assets to children and grandchildren.
Some investment experts worry that if the rich start shifting money to future generations instead of spending and investing, it will affect the economy. Investments are the main asset for the wealthy, while for the middle class, it's a home. And consumer spending makes up three-fourths of the economy.
Although polls show the middle class generally favors taxing the wealthy, it's not just the rich who will be paying. There's talk in the Administration about reducing tax breaks for home mortgage interest, charitable contributions, municipal bonds and retirement contributions, though many politicians view those tax breaks as sacred cows.
Time will tell, but the fact remains that the money to pay down the deficit will likely have to come from tax revenue.
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