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Wealthy Americans may see higher income taxes

WASHINGTON — It's probably never a bad time to be rich. But the good times for America's wealthy could soon be a little less so.

President Barack Obama wants to boost income taxes for the wealthy to pay for tax cuts for everybody else. He wants to limit the deductions that high-income families take for mortgage interest and charity contributions to help pay for providing more people with health insurance.

House Democrats are planning to hit the wealthy with even higher income taxes to pay for their version of a health care overhaul.

Between the plans, a family of four with an income of $5 million a year would see its annual income taxes skyrocket by more than $440,000. A similar family making $800,000 a year would get a tax increase of $30,000, according to an analysis by the financial services firm Deloitte Tax.

"I still think being wealthy is better than being poor," Clint Stretch, who heads tax policy at Deloitte Tax, said with a touch of understatement. "But this is a pretty high proposed tax burden."

Taxing the rich to pay for health insurance would represent a significant departure from the way Americans have financed safety net programs in the past.

Both Social Security and Medicare are supported by broad-based payroll taxes. Although the rich pay more — they have bigger incomes — the burden is shared by the middle class and even the working poor.

By contrast, the health care plan working its way through the House would impose $544 billion in new taxes over the next decade on just 1.2 percent of households — joint filers making more than $350,000 a year.

Democrats said that for most of the affected taxpayers, the surtax would be far smaller.

"What we're talking about is frankly very, very small amounts for the overwhelming majority of people who will pay it," said Rep. Artur Davis, D-Ala.

The House Democrats' proposed health care surtax would increase the top rate to 45 percent, making it the highest top rate since 1986, when it was 50 percent.

Republicans complain that some taxpayers would face marginal tax rates above 50 percent, when federal and state taxes are combined. They also say that tax increases on the wealthy hurt small business owners who typically pay their business taxes on their individual returns.

Democrats say the tax increases would affect only 4.1 percent of tax filers who report small business income. Those small businesses, however, tend to be the ones that employ the most workers, according to data from the National Federation of Independent Business.

"We shouldn't have to resurrect the 1970s to remember that when tax rates go too high, people lose the incentive to build new businesses and create jobs," said Rep. Wally Herger, R-Calif.

How tax increases could hit the rich

The health care bill working its way through the House would impose $544 billion in new taxes over the next decade on families making more than $350,000 a year, on top of President Barack Obama's plan to increase the top tax rates. How the increases would affect families at different incomes:

• A family of four making $450,000 a year would pay $103,600 in federal income taxes, an increase of $1,000.

• A single filer making $450,000 a year would pay $112,200 in federal income taxes, an increase of $7,100.

• A family of four making $800,000 a year would pay $220,800 in federal taxes, an increase of $30,000.

• A single filer making $800,000 a year would pay $231,300 in federal taxes, an increase of $30,700.

Four-person families include two minor children. Projections assume a mix of earned income, capital gains and itemized deductions at each income level, based on Internal Revenue Service data.

Source: Deloitte Tax

Wealthy Americans may see higher income taxes 07/19/09 [Last modified: Sunday, July 19, 2009 11:47pm]
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