THE TAXMAN COMETH
Hugh Wood, Atlanta, GA

                The Era of USA low taxes is in sunset.  The tax hammer is upon us.

               Why editorialize it. 

                2013% INCREASES IN FEDERAL TAX BRACKETS

                For those of us who actually pay taxes, federal taxes in 2012, are, to wit:  “Marginal federal income-tax rates (for the four brackets)  [are]  25%  28%  33%  35.”  [1]

                After January 1, 2013, they will rise to:

                The “marginal federal income-tax rates (for the four brackets) [will jump to] …28%  31%  36%  39.6%. The child tax credit [will] fall to $500 from $1,000.   Id.

                A MEDICAL TAX ON CAPITAL GAINS AND DIVIDEND INCOME

                After January 1, 2013, individuals will see a new tax for medical care imposed on capital gains and dividend income.   “[T]he new 3.8% MedicalCare tax, and those rates on capital gains and dividends [will jump] to 23.8% and (in the top bracket) 43.4%.   Id.

                From other sources, additional relevant tax hammers are:

                A NEW SURTAX ON INVESTMENT INCOME

                The 2013 a new Surtax on Investment Income – will bring a $123 billion tax increase: This is a new, 3.8% point surtax on investment income earned will impact households making at least $250,000 ($200,000 single). This will result in the following top tax rates on investment income:

	Capital Gains	Dividends	Other*
2012	15%	15%	35%
2013+ (current law)	23.8%	43.4%	43.4%

                The table above also incorporates the scheduled hike in the capital gains rate from 15% to 20%, and the scheduled hike in dividends rate from 15% to 39.6%.  [2]

                MEDICARE PAYROLL TAX:  3.8% UP TO $250,000

                The new 2013 Medicare Payroll Tax Hike – will bring an $86.8 billion tax increase: The Medicare payroll tax is currently 2.9% on all wages and self-employment profits. Under this tax hike, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8% rate instead. This is a direct marginal income tax hike on small business owners, who are liable for self-employment tax in most cases. The table below compares current law vs. the 2013 Medicare Payroll Tax Hike:

	First $200,000 ($250,000 Married) Employer/Employee	All Remaining Wages Employer/Employee
Current Law	1.45%/1.45% 2.9% self-employed	1.45%/1.45% 2.9% self-employed
2013 Tax Hike	1.45%/1.45% 2.9% self-employed	1.45%/2.35% 3.8% self-employed

Id.

                THE DEATH TAX RETURNS WITH A VENGEANCE (55%)

                Under federal estate tax law for 2011 and 2012, most of the wealthiest 1% of American households are not subject to estate tax liability. The large estate tax exemption is presently at $5.12 million per spouse. This means that with nominal planning households worth less than $10.24 million can avoid the estate tax.  

                Under the new January 1, 2013 Estate Tax scheme, taxable estates over $1 million will be subject to estate tax.  The maximum marginal tax rate of 55% will begin at $3 million.  [3]  So, put that  55% tax in your tax hat and smoke it.  [4]

                Why editorialize this.   The tax hammer is upon us.

Hugh Wood, Esq.

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com

hwood@woodandmeredith.com

www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

 

[1]

Pethokoukis, James, The American Enterprise Institute, August 1, 2012.

[2]

Americans for Tax Reform, September 2012

[3]

Forbes June 2012   See also, “Top Estate Tax Rates Set To Rise To 55 Percent In 2013.”  Gladstone, Beth, ReutersMoney.  Reuters.

[4]

While perhaps a bit extreme, consider the George Steinbrenner’s (owner of the NY Yankees at death) estate.  (1930-2010).   Steinbrenner’s estate was considered to be worth $1,100,000.000.00.   Dying in 2010 his estate paid zero (0%) estate taxes.   However, if Steinbrenner had died in 2013 his estate would pay $605,000.000.00 in estate taxes (less, an exemption of 10.5M which I did not bother to calculate).

So, under 2010 law his heirs divide:  $1,100,000.000.00.

But,

Under 2013 law, his heirs would divide only:  $495,000.000.00.   And, the US Treasury has to be paid IN CASH.  Thus, the Treasury gets all the cash and the estate (mostly) gets left with all the non-liquid assets.  In many cases, this is the non-liquid real estate.