2/26/2014 3:15 PM ET|
Who pays the 3.8% investment tax?
Hint: It isn't you. The bulk of the burden of a new tax on net investment income falls squarely on the top 0.1 percent of Americans. But they also reap an exclusive tax benefit.
As I have covered in nauseating detail, the 2013 tax year adds a new wrinkle -- some taxpayers will pay an additional 3.8 percent surtax on the lesser of:
1. the taxpayer's "net investment income," or
2. the excess of the taxpayer's "modified adjusted gross income" (this will be equivalent to adjusted gross income in most cases), over $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for all other taxpayers.
In (very) general terms, "net investment income" includes income from interest, dividends, rents, royalties, passive activities and gain from the sale of most properties.
The new tax, which is imposed and governed by Section 1411, is expected to raise $123 billion between 2013 and 2019. But who's going to foot the bill?
The quick answer is obviously "the wealthy," as the tax generally only applies to taxpayers with adjusted gross income in excess of $200,000, which immediately limits its application to roughly 2 percent of the population.
And while yes, the "wealthy" will be on the hook, it is the uber-wealthy who will pay more than half of the $123 billion price tag.
According to this study performed by the venerable eggheads at the Tax Policy Center, while the wealthiest 1 percent will bear 88 percent of the total tax burden, the average increase in tax for the richest 1 percent will be only $23,000.
(Immediately ducks to avoid onslaught of pointy objects thrown by people dressed like the Monopoly guy.)
The richest 10 percent of the richest 1 percent -- or the richest 0.1 percent, if you're into decimals -- however, will pay a whopping 52.5 percent of the total cost of the new tax, with an estimated per-taxpayer annual addition of $131,000.
Before you decry the new tax as patently unfair due to its narrow focus, keep one thing in mind. There are still preferential tax rates afforded long-term capital gains and qualified dividends. These rates are currently at a maximum of 23.8 percent, which while less favorable than 2012's top rate of 15 percent, is still a far cry from the top ordinary rate of approximately 44.6 percent.
And according to a separate study performed by the TPC, this rate arbitrage will amount to a $542 billion dollar tax benefit over the period 2013-2017, an amount that is four times larger than the tax increase caused by the new net investment income tax.
And just like the net investment income tax, the beneficial rates applied to long-term capital gains and qualified dividends are not the concern of the unwashed masses; in fact, during 2011, the top 0.1 percent recognized 75 percent of all capital gains.
It would follow then, that the richest 1 percent receives nearly all the benefit of this $542 billion tax benefit. This math is supported by the TPC, which finds that taxpayers with income in excess of $500,000 enjoy 85 percent of the $542 billion tax benefit resulting from lower rates on certain investment income, while those earning less than $100,000 only receive 1.4 percent of the benefit.
So in summary, the wealthiest taxpayers in America will be footing over 88 percent of the $123 billion price tag of the new net investment income tax, but they also will be benefitting from 85 percent of the $542 billion tax savings resulting from the preferential rates afforded these types of income.
More from Forbes
VIDEO ON MSN MONEY
The majority of illegals are from Mexico. Many Americans have a great respect for their work ethic. However, look at the numbers - they make an average of $22,000 and have an average of 2-3 kids. Citizenship means an automatic eligibility for food stamps, WIC, free school lunches, subsidized housing, Medicaid, free cell phones, SSDI if their back hurts, TANF cash, SSI cash, etc....
At tax time in April, when 53% of Americans are paying taxes, the new citizens would be getting huge bonus checks that include all the money that they paid in during the year plus EITC and Child Tax Credits. The 53% cannot afford more burdens to pay for. We already have 40,000,000 home grown welfare cases that we have to support.
Lawmakers are about to give the OK to millions.
What none of these so called surveys ask is what people think of allowing another 40-60 million third world immigrants in, in the next 10-15 years, because under existing laws (for "family reunions") that is exactly what will happen if you legalize the 15-20 million illigals currently residing in the country.
That was the damned dumbest article written by a Democrat "I want to spend you money" editorialist...
Here's why! .... This $542 Billion dollar tax benefit due to the difference in tax rates IS NOT A BENEFIT... IT IS THE LAW!! Get it, idiot?? It's the law. The law dictates the tax code.. I guess we Americans love the "BENEFIT" of being allowed by our government to keep any of our income. It's not really our income, it's ALL the government's!! Is this what you are saying??
So in the future, my friends, following the law is a benefit, not a requirement!!
Will the onslaught of idiots from the "I want your money" gutless Democrats ever stop??
Does it sound like a free society when one group can vote to XYorZ to another group to the exclusion of oneself? Why can I not vote for a law to take every black man's car? Why not? I am not suggesting it, but offer it by way of illustration. So why is it ok to single out any group to be punished in anyway? Would it be Constitutional to pass a law to take Bill Gate's house as some form of tax? I mean all we have to do is vote to take it. All we have to do is vote to take every Hispanic's car. I would guess most everyone would say "no that is not legal, that is not right". Then why is it right to be able to vote to take anything from any minority, whether that minority be the top 1/10 percent of income earners? This form of taxation has become so common place as to, I am sure, have people just dismiss it as a valid question. Both, because human greed and envy leave us just wanting to steal other people's stuff and because the question is a foreign one to us.
The Constitution is a document to PROTECT the minority against any majority. This is it's primary purpose. You have a right to free speech so a majority can not just vote 51% to say you can not say xyz. You have a Constitutional right to bear arms so that a vote of 51% or 99% of the people can not take them from the 1% wishing to own them. And on and on and on. And this protection should logically, and morally, apply to one's property.
I am sure all envious and greedy people will thumbs down the post and not one will explain how it is moral to steal another man's wealth even if it is via the gun of Uncle Sam and not by one's own hand.
2013 - using figures from the Tax Policy Center and the Institute on Taxation and Economic Policy
- Earners in the top 1 percent pay about 43 percent of their incomes in tax.
- People in the middle quintile pay 25 percent.
- The poorest fifth pays 13 percent.
According to 2011 IRS data,
The top 1 percent have adjusted gross incomes of $388,905 per year or more.
The top 10 percent have adjusted gross incomes of $120,136 per year or more.
------------ CASE CLOSED ----------------
Nitti says "the beneficial rates applied to long-term capital gains and qualified dividends are not the concern of the unwashed masses".
He is, of course, wrong.
Those billions of dollars taken from the evil rich do not affect the way they live. They reduce the investments made in businesses that create jobs. There's a reason we're suffering the worst economic recover since FDR turned a financial panic into the Great Depression. It's bad government keeping the people from freely engaging in commerce. Our president has publicly stated that it is more important to "get those guys" (his words, not mine), than to raise tax revenue.
MSN is no doubt pleased.
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