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PERSPECTIVE: Are higher taxes ahead?

Preliminary talk coming out of Washington, D.C., has it that the wealthiest of U.S. taxpayers could be hit hard if the tax proposals in President Obama’s 2013 federal budget become law. Then again, there is always wiggle-room for this being softened by eventual bipartisan compromise. Even so, as currently proposed, it would impact the wealthiest Americans on several fronts

First would be the top tax rate being reset to 39.6 percent for individuals earning more than $200,000 a year and couples earning more than $250,000 per year. Additionally, word has it that the Obama White House would like to see the “Buffett Rule” initiated. According to the February 17th issue of the New York Times, this new rule would impose a 30 percent federal income tax floor for anyone earning more than $1 million a year. And even though President Obama has mentioned this in his speeches, the proposed 2013 budget contains no details of it. As many have heard, Warren Buffett has been quite outspoken in his belief that he and other wealthy American taxpayers are not paying enough in federal income taxes.

Next, according to MSN.com, long-term capital gains would be taxed at 20 percent instead of 15 percent and dividends amassed by businesses and taxpayers in the highest income tax bracket would be taxed as ordinary income at 39.6 percent. Additionally, as a condition of the Health Care and Education Reconciliation Act of 2010 the highest-earning U.S. households would e hit with a new 3.8 percent Medicare health care tax on unearned income in 2013. This health care surtax would only affect taxpayers who realize huge amounts of investment income; that being gains exceeding $250,000 for individuals or $500,000 for a married couple which would increase the effective tax on dividends to be taxed at 43.4 percent. This tax would also apply to income derived from real estate investments.

Estate taxes could also face a double-whammy with the estate tax exemption being reduced from $5 million per person to $3.5 million and the estate tax bracket being increased to 45 percent from 35 percent.

The big question becomes; how much of this budget draft will make it through Congress? Much of what the President is proposing may not be realized, but with Washington needing to reduce its deficit, many of these changes could end up taking effect. And even though most of these tax increases do not directly affect Mississippi taxpayers, nevertheless, it is always important we keep our eyes open and ears to the ground when tax increases are on the table. It reminds me of the quote from humorist Will Rogers who once said: “the only difference between death and taxes is that death doesn’t get worse every time Congress meets.”

Parting Shot: Many today tire of the doublespeak we get from our politicians in Washington. This is particularly true as it relates to the federal budget deficit and the reality to the fiscal situation as it currently exists. Below is a comparison from a fellow financial advisor in Oregon that puts today’s problem with the federal deficit into better perspective:

U.S. Tax Revenue — $2,170,000,000,000

Federal Budget — $3,820,000,000,000

New Debt — $1,650,000,000,000

National Debt — $14,271,000,000,000

Budget Cuts — $38,500,000,000

Note recent Budget Cuts has three less zeroes than the four listed above

>> Now, let’s remove 8 zeroes and pretend it’s an annual U.S. Household budget

Family Income — $21,700

Family Budget — $38,200

Credit Card Debt — $16,500

Amount Owed — $142,710

Budget Cuts — $385

This puts things in a little clearer light.

Ike S. Trotter, CLU, ChFC, is a financial advisor in Greenville. Securities and investment advisory services provided through Woodbury Financial Services Inc., Member: FINRA, SIPC and Registered Investment Advisor, P.O. Box 64284, St. Paul, MN 55164. Tel: 800.800-2638. IKE TROTTER AGENCY, LLC, and Woodbury Financial Services are not affiliated entities. Information and opinions expressed are those of the author and not necessarily those of Woodbury Financial Services Inc.


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