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"Huge (53%) Tax Increase On SAVERS

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"Huge (53%) Tax Increase On SAVERS

Source The Market Ticker   Wednesday, March 17. 2010

Posted by Karl Denninger

If you were wondering where the hidden taxes are in "Health Reform", guess what - President Obama has just given you something to sit on.

The forced march to pass ObamaCare continues, and all that matters now is raw politics. But opponents should go down swinging, and that means exposing such policy debacles as President Obama's 11th-hour decision to apply the 2.9% Medicare payroll tax to "unearned income."

That's what savings and investment income are called in Washington, and this destructive tax wasn't in either the House or Senate bills, though it may now become law with almost no scrutiny.

This is unbelievably destructive to capital formation.

For the person who is "short-term trading" (e.g. daytrading, etc) this is a relatively small tax, an increase of about 7% in the tax (2.9% applied to the 39.6% maximum rate on "ordinary income", which short-term capital gains are.)

But for the person who is INVESTING for the long haul, that is, who is holding stocks for more than one year, this takes the marginal rate from 15% to 17.9%, an increase of almost 20% in the tax owed.

This, of course, comes on the back of President Obama's fraudulently engineered "rally", which was created through Congressional intervention to permit - surprise surprise - legalized accounting fraud through "mark to model."

So you got your stock market rally, and now President Obama and The Democrats are going to cram a 20% tax increase down your throat if you profited from it - and at this point, being 2010, there's not a thing you can do about it.

It gets better.  Since ordinary investors can only write off $3,000 in capital losses, when you lose you don't get a tax credit.  Oh yeah, you get to carry forward the loss to future years, but you paid the tax on the gains already - this is a putative future credit back.

Oh, and let's not forget that there was already a huge tax increase coming this year - the long term capital gains rate goes to 20% at the end of this year anyway as the Bush tax cuts expire.

So in fact the rate goes from 15% to 22.9%, a fifty-three percent increase in the tax rate.

And oh, if your AGI goes over $200,000 by even a dollar you are subject to this tax from the first dollar of your investment income.

A fifty-three percent increase in taxes on long-term (that is, capital-forming, long-term investment) capital gains - exactly the sort of investment activity you want to form businesses and invest for the long haul in America's future, not to mention generating jobs by forming those enterprises.

That's slammed the door on any interest I might have in forming a new business as I did in the 1990s - ever - and I suspect I'm not alone.

When this goes into effect my capital, other than that which I can shelter from taxation, is no longer going to be put at risk in the markets. I'd rather live in a nice little cottage on the beach and simply expend what I have rather than contributing to capital formation in any way, shape or form under a punitive system like this.

Why?

Because if Congress demonstrates that it will put 53% on the capital gains rate once I've already committed my capital (thereby destroying my return) I will not take the risk of them doing it again and making the rate even more punitive."

 
Entry #1,696

Comments

1.
Comment by GASMETERGUY - March 17, 2010, 3:02 pm
If you think the increase in "unearned income" is bad, just wait. When ObamaCare comes into play the government will need everyone's money. There will be a 100% tax of all that you own, all that you ever owned, all that you might own, and all that your family ever thought about owning. The cost of health care will skyrocket when all the welfare babies go to the doctor to have their hair cut, claiming sensitive skin issues or some other flimsy excuse.
     Look at Venezuela. Look at their life style before Hugo took power and today. We are headed in that direction all because there are people in this country who think sharing is a good idea.
2.
konaneComment by konane - March 17, 2010, 3:42 pm
Thanks Gasmeterguy! Conservatives see beyond today as to the havoc it will cause, but some believe the money is going to magically appear and things are gonna be just great. Sharing is fine so long as it's voluntary. Redistribution is legislated theft which is stealing. Big difference.
3.
ThinkComment by Think - March 17, 2010, 10:04 pm
For those of us that dont subscribe to the WSJ could please post a link to the specific legislation that will impose this tax? I clicked on the link in this post but you have to have a subscription to read it. ( President Obama has just given you something to sit on. )


Thanks
4.
konaneComment by konane - March 17, 2010, 10:48 pm
Thanks Think! I personally don't subscribe to WSJ (never have) so if anyone reading has the data please post it.

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