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Obama Budget Raises Taxes on Small Employers, Savers, Families
President Obama released his FY 2013 budget this morning. By his own numbers, his budget raises net taxes over the next decade by $1.56 trillion (Table S-9, page 225). As a percentage of the economy, tax revenues would rise all the way to 20.1% of GDP in 2022, far higher than the historical tax revenue average of 18.3% of GDP (Table S-1, page 205).
Here are some of the tax lowlights:
All 20 of the new or higher taxes in Obamacare are assumed to take place. That means that there will be a 3.8 percentage point surtax on investment income. It means that there will be excise taxes imposed on those unwilling to comply with the individual or employer mandates. That means that health insurance plans will face new taxes that will be passed along as premiums. The list goes on and on.
The tax rate at which the majority of small employer profits face taxation will rise. Under the Obama budget, the top marginal income tax rate (at which a majority of small employer profits will face taxation) will rise from 35% today to 39.6% in 2013.
The capital gains rate will rise from 15% today to 23.8% next year. That's because the Obama budget assumes the pre-2001 capital gains rate of 20% for investors earning more than $250,000 per year. On top of this, the Obamcare surtax on investment will raise this rate to 23.8%. Separately, capital gains earned as "carried interest" will be taxed at ordinary income tax rates.
The dividends rate will raise from 15% today to 43.4% next year. The Obama budget proposes taxing dividends for investors making more than $250,000 per year at ordinary income tax rates, which will rise to a top rate of 39.6% under the budget. In addition, the Obamacare surtax on investors will combine to nearly triple the tax rate on dividends in just one year.
The real tax rate on capital gains and dividends is actually even higher than this. Since taxes on dividends and capital gains are a cascaded double taxation on savings, the rate is actually far higher than this. Before being taxed to investors as capital gains and dividends, the money first faced taxation as corporate profits. The U.S. has the highest corporate income tax rate in the developed world at 35%. When factoring this in, the Obama budget is actually proposing a capital gains tax rate of 50.5% and a dividends rate of 63.2%. That would leave U.S. employers and savers at a severe competitive disadvantage.
The death tax will rise from 35% today to 45% next year. The Obama budget calls for the top rate on estates (the death tax) to rise from 35% today to 45% in 2013. In addition, more and more families will face this tax. The budget calls for cutting the death tax "standard deduction" from $5 million ($10 million for couples) in place today to $3.5 million next year. Thousands more families will have to visit the undertaker and their tax accountant on the same day.
Taxes raised on larger employers by $147 billion, pushing capital and jobs overseas. The budget moves toward a full double-taxation of profits on U.S. companies doing business overseas. Not only would these companies have to pay tax in the country they earned the money in--they would have to pay tax again if they wanted to bring that money back to the U.S. As a result, companies will have no incentive to bring back money to America to invest in plant and equipment, create jobs, fund pensions, or pay shareholders.
- Taxes raised on families who consume energy by at least $100 billion over the decade. A whole series of tax increases on oil and gas companies, coal, and other producers of oil are proposed in this budget. Companies don't pay taxes--people do. These higher taxes will be passed along to families in the form of higher energy bills, skinnier 401(k) balances, and lower wages.
(This article was updated from its initial posting)