Read my headline: Your tax burden will increase in 2013. What’s that: You’re not among the top 2% of earners? In that case, re-read my headline.
Although it is not a point the president is eager to emphasize considering that he ran for re-election chiefly on the promise of keeping taxes level for the middle class, everyone will pay out more to Uncle Sam in the coming year. This is the unvarnished truth, and it is immutable even in the best-case Democratic scenario (viz., the Bush-era tax cuts are permitted to expire for the “wealthy” only).
Starting in January, 163 million workers will start paying an additional $1,000 per year in taxes. The reason, as Stephen Ohlemacher of the Associated Press writes, is that the Social Security payroll tax holiday will quietly be permitted to expire. Two-earner family with six-figure incomes can expect to pay as much as $4,500.
New taxes related to the implementation of Obamacare are also due to kick in the first of the year. These include:
“Special Needs Kids Tax.” Designed to yield $13 billion in new revenues, the provision will affect the 30 to 35 million Americans who use a Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs. The tax will be manifest not as a percentage but as a government-imposed cap of $2,500.
One group that will be especially hard hit by this tax is families of special needs children. There are several million such families in the U.S., and many of them use FSAs to pay for their child’s education, which can exceed tens of thousands of dollars per year. Under extant tax rules, FSA dollars can be used to pay for this type of education, but the Obamacare tax provision will curtail the options available to these families.
“Haircut” for Itemized Medical Deductions. Meant to bring in $15.2 billion in tax revenues, the provision most affects Americans with high medical expenses. Historically, these individuals have been able to deduct expenses that exceed 7.5% of adjusted gross income (AGI). Under the new law, the ceiling is increased to 10% of AGI. The net effect is to widen the net of taxable income for the sickest Americans. Those approaching retirement and with modest incomes but high medical bills are likely to be the most severely impacted.
Medical Device Tax. Targeted at adding $20 billion in new revenues, this provision imposes a 2.3% excise tax on the gross sales of devices such as pacemakers and prosthetics. While the tax is imposed on device manufacturers, rather than the individual consumer, the end user will be greeted by higher price tags. As an aside, this industry currently employs 409,000 people in 12,000 plants across the country. Layoffs to offset the tax are likely, and so are cuts to research and development budgets.
Surtax on Investment Income. Even if the president and members of Congress are able to reach a grand bargain that extends the Bush-era tax cuts across the board, households making a minimum of $250,000 ($200,000 single) will still get it socked to them. The provision, meant to net $123 billion in new revenues, imposes a 3.8% surtax on investment income. The net effect would be an increase in the top tax rates on investment income from 15% to 23.8% on capital gains and 15% to 43.4% on dividends. It doesn’t take a crystal ball to predict the stultifying impact this change will have on both future investments and the small business job picture.
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- Joe Biden concedes middle class has been ‘buried’ last 4 years
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- Study: Americans’ incomes have fallen more during recovery than during recession
- Solution to the debt crisis: Tap the nation’s “additional income” reserve
- Obama’s economic “fairness doctrine”
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