The truly tedious argument disarms the opposition. It doesn’t get more tedious than “asking the rich to pay their fair share” or “a fair and balanced approach.” Republicans are now so bored by President Obama that they can no longer summon the will to resist.
Having won round one in a spectacular fashion, the president has now turned his attention from tax rates to loopholes and deductions. His justification? Fair share. “What does ‘fair share’ look like?” How will we know when we’ve arrived?
This is what we know so far. The income tax rate on dollars earned above the threshold was raised from 35 to 39.6 percent, a 13 percent increase. The capital gains rate was raised from 15 to 20 percent, a 33 percent increase. The Medicare tax was raised from 2.9 to 3.8 percent for those in the top bracket. The tax is applied to wages, interest, dividends, royalties and capital gains Applying the Medicare tax to income sources previously excluded, raises the effective rate on capital gains to 23.8 percent and the income tax rate to 40.5 percent.
We can argue about the label applied to the insurance mandate in Obamacare. It may be a fee or it may be a tax. We do know that, however it is labeled, there will no subsidy available to those in higher tax brackets. The self employed wealthy will now be required to foot the full premium for a government designed health policy. They will be required to do so whether they need or desire the insurance and without taxpayer subsidies.
Some states have implemented tiered tax rates. The state income tax in the top bracket has reached 11.0 percent in Oregon and 10.55 percent in California. The tax code has been redesigned. The federal threshold for itemized medical expenses has been raised from .075 percent of adjusted gross income to 10 percent of the same. A tax payer with an adjusted gross income of $200,000 and itemizable medical expenses totaling $50,000 would be allowed to itemize $30,000 of those expenses. He would, of course, be responsible for the other $20,000 and would also have that $20,000 treated as ordinary income and taxed accordingly.
The rich are also subject to the fees and consumption taxes that apply equally to everyone such as sales taxes and the annual assessment for Obamacare implementation ($63 annually for the next three years). The wealthy are more like to pay both shares of the FICA tax as they are often sole proprietors or Subchapter S corporations.
The president moves his attention toward capping deductions and limiting the benefit that can be derived from them. Now that he is armed with higher rates, he is looking expand the breadth of taxable income.
At the marginal rate, it is apparent that some taxpayers shoulder a combined federal/state/FICA/ Medicare obligation of 45 to 65 percent. The taxpayer nets 35 to 50 percent of profit or wages for doing all of the work and absorbing most of the risk. The Federal government get 40 percent. Sounds like a foolproof strategy for growth.