The showdown in Washington over Federal taxes and spending ended with an agreement signed into law this week. Here are the losers and winners that we can see at this point. Further analysis is forthcoming of H.R.8 – American Taxpayer Relief Act of 2012, and will be reported to you later this month.
- Overall Taxes: Joint filers with incomes below $450,00, individuals with incomes below $400,000 and heads-of-households with incomes below $425,000 WILL CONTINUE to enjoy tax reductions put in place by George W. Bush.
- Alternative Minimum Tax: Tax payers with incomes below $50,600 (individuals) and $78,750 (married couples filing jointly) respectively, WILL NOT be faced with the Alternative Minimum Tax (AMT). It was set to go to $33,750 (individuals) and $45,000 (married couples filing jointly). This will be indexed for inflation.
- Unemployment Benefit Recipients WILL have benefits EXTENDED this year.
- Entitlement Recipients of things like Social Security, Medicare and Medicaid WILL NOT face reductions, however expect battles over this one in the coming year, and changes affected by Obama Care, as the economy continues to struggle and deficits increase.
- Investors owning stocks that pay dividends, or the long-term sales of stock WILL NOT face increased tax on dividends and capital gains if their income is below the above amount.
- Itemizers: Tax filers with incomes below $250,000, heads of households below $275,000 or married joint filers below $300,000, WILL CONTINUE to enjoy the same itemized tax deductions for things like home mortgage interest and contributions to charities.
- Politicians benefit by not having to reduce spending for entitlements or cut back on special deals made to specific industries, thus enabling them to continue to receive political support from those groups and entities – in the short run.
- Pork Recipients: About $70 billion worth of special tax breaks were written into the bill.
- Employees: Anyone paying federal payroll taxes will see an INCREASE in the amount withheld from their paychecks from 4.2% to 6.2%. If you make $50,000 expect your pay to decrease by 2% or approximately $1,000 for the year, or about $83 per month. This restoration of a tax holiday was inevitable to pay for current and future Social Security and Medicare benefits.
- Self-employed people will see an INCREASE in their payroll tax from 8.4% to 12.4%, or an increase of about $2,000 if making $50,000.
- High Incomes Earners with incomes above $450,000 will see an INCREASE in their top tax rate to 39.60% from 35% (individuals with incomes above $400,000 and heads-of-households with incomes above $425,000).
- High Income Investors owning stocks that pay dividends, or those that sell stock (held long-term), will face INCREASED tax on dividends and capital gains to 20% from 15%, if their incomes exceed the levels described above.
- Large Estates: Individuals dying with estates in excess of $5 million will see the tax on their estates INCREASE from 35% to 40%.
- Alternative Minimum Tax (AMT) Payers: Tax payers with incomes above $50,600 (individuals) and $78,750 (married couples filing jointly) respectively, will CONTINUE to be faced with the Alternative Minimum Tax (AMT). Many have hoped to see the AMT go away completely, or income minimums increased substantially.
- High Income Itemizers: Provisions of the Bill will REDUCE itemized deductions such as mortgage interest and charitable contributions to those with incomes $250,000 and above, $275,000 for heads-of-households or married joint filers above $300,000.
- Those served by charities: Anyone who benefits from not-for profit enterprises that rely on charitable contributions, may see less benefits being provided to them, or increased costs. This is due to some limits now being placed on tax deductions given for contributions made to these institutions, from higher income people. Charities and non-profits may be faced with shrinking budgets due to lower contributions.
- Charities MAY LOSE income due to the reduction of itemized tax deductions for high income donors.
- Politicians on the right may LOSE political clout, since they relinquished some of their goals for reduced spending. Politicians on the left may LOSE political clout in the long-term, if the the economy fails to recover or we go through another recession. Most US citizens overall opinion of all political leaders continues to decline amidst poor leadership.
- All US Citizens and succeeding generations will suffer from poor federal leadership when it comes to current economic policy of run-away spending and lack of balanced budgets.
Summary observations from a Christian perspective
I covered this in the article linked in the next paragraph some, but I wanted to add an observation from a friend and top stewardship leader. While we were discussing various issues such as increases in taxes and entitlements… and church giving. He recalled that if every Christian who receives an income tithed 10%, that the revenue would exceed the annual cost to provide Social Security, Medicare, Medicaid and Federal unemployment benefits. I don’t recall where he got this number, or if this is true, but I’d bet it would be close when you consider the payroll tax rate. Also Barna reports that a small percentage of Christians of all denominations tithe 10%. Imagine the resources the church would have to care for the poor, infirm, widows and orphans if all Christians tithed. My friend commented that when the church fails to give and provide, then the government is put into the position to tax and provide. Not saying that is the best solution, but doesn’t it seem like this is what has happened?
This battle took so long to remedy, due to major philosophical differences, that I wrote about earlier this week, “Do you want to know what the fiscal fight is really about.” Expect the battle to rage on in the coming year. This information should not be relied upon for your individual tax situation: consult your tax, legal and financial advisers.