Tightened Up

I read an article in Baron’s this weekend that reinforced a big fear that will need to be addressed sometime this year.  After the debacle our government put on last year it causes me to really question their ability to address fundamental issues facing our country, and by the way throw in a Presidential election as well.

Baron’s stated in their article titled A Path to Solvency: “The most hopeful aspect of American policy turns out to be gridlock. ….Closely inspect the recent report of the Congressional Budget Office, issued in advance of the president’s budget.  The report says that if no new laws are passed, tax revenue should grow 31% from 2012 through 2014, and increase of 3.7 percentage points that would bring its share of GDP to 20%.  In fiscal 2014 alone, tax revenue would shoot up by about $1 trillion, to $3.3 trillion.”

If these large tax increases occur and the economy is still soft, then this could pose the biggest risk to quickly unrailing our modest progress made since the recent depression.

Here is a sampling of a couple of big items that expire this year alone:

– Federal income bracket rates increase to 15%, 28%, 31%, 36% & 39.6% from 10%, 25%, 28%, 33% and 35%

– Capital gains tax is scheduled to rise to 23.8% from 15%*

– Dividend tax is set to rise to 43.4% from 15%**

– Estate and gift tax will rise to 55% from 35%

– Estate and gift tax exemptions are going from $5 million back to $1 million

– Earned income tax is also rising due to the addition of new healthcare taxes*

* Assumes addition of a 3.8% Medicare surtax on investment income over $250,000

** Assumes the highest ordinary income tax bracket