If the Bush era tax cuts are allowed to expire (currently scheduled to expire at the end of 2012), virtually ALL taxpayers will be faced with a combination of higher tax rates on their income, dividends, and capital gains. Higher income earners will pay an additional 3.8% on their investment income and almost one percentage point higher on their Medicare rate as dictated by the Patient Protection and Affordable Care Act, affectionately known as “Obamacare.”
Here is how the tax rates break down:
| 2012 Dollars | Pre-Bush Rates | –In 2013– | Current Rate | Obama Plan | Romney Plan |
|---|---|---|---|---|---|
| $388,350 + | 36.6% | 39.6% | 35% | 39.6% | 28% |
| $217,450-$388,350 | 36% | 36% | 33% | 36% | 26.4% |
| $142,700-$217,450 | 31% | 31% | 28% | 28% | 22.4% |
| $70,700-$142,700 | 28% | 28% | 25% | 25% | 20% |
| $17,400-$70,700 | 15% | 15% | 15% | 15% | 12% |
| Up to $17,400 | n/a | n/a | 10% | 10% | 8% |
| Top Dividend Rate | 39.6% | 43.4% | 15% | 43.5$ | 15% |
| Top Cap Gains Rate | 20% | 23.8% | 15% | 30% | 15% |
| Estate Tax Rate | 55% | 55% | 35% | 45% | 0% |
| Estate Exemption | $675,000 | $1 Mil | $5 Mil | $3.5 Mil | n/a |
Note: Under Romney’s plan, couples with annual income below $200,000 will pay no taxes on capital gains and qualified dividends though he plans to offset the reduction in tax rates with unspecified limits on deductions.
From where I’m standing, most people are set to be shocked unless something changes with the tax law OR there’s s change of address at 1600 Pennsylvania Avenue. With the tepid “recovery” we’re experiencing, an increase in tax rates could be catastrophic.
What will happen to YOU if these tax rates increase?
Simply put, you’ll pay more in taxes and have less take home pay.
Tomorrow, we’ll examine 10 different strategies you can employ to help you make some decisions on handling the potential for increased taxes.
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{ 3 comments }
Hey Ron, this is a great, very succinct piece of information, but let me make sure I understand the chart.
I am in the 70-142 bracket. So, are you saying that no matter who gets elected, that my tax rate will actually go down and I will pay less taxes?
I just want to make sure I understand what you are saying with the chart. Thanks.
No. Your taxes on income will only be cut under the Romney plan. With the scheduled expiration of the Bush tax cuts (cuts passed by Congress) you are scheduled to have a tax increase to the 28% bracket. Obama says he will “cut” that back to the 25% bracket you’re currently in anyway. That’s like a retailer selling a $20 item for $30 … with a $10 coupon.
Romney’s plan would cut your current rate to 22.4% from where you are now (25%). And if you have dividend income or capital gains, you will have a tax increase as scheduled AND under the Obama plan. Only Romney’s plan keeps those two components of your financial situation under the low tax rates we have now.
Okay, I think I get it. I guess since the chart didn’t have the current rate, it was confusing me a bit. Thanks for the insight.