The President is after the "rich", meaning, he says, the "millionaires and billionaires." But the tax increases that already are set to take place in January--unless a new President and a new Congress decide to reverse them--hit people who make $200,000 a year ($250,000 a couple). The truly rich--the millionaires and billionaires--have lots of legal and accounting advisors and will move their money to avoid taxation.
Here is what is coming (Source: Tax Policy Center, via Wall Street Journal, Laura Saunders, September 1, 2012):
* An end to this year's Social Security tax cut. It's now 4.2 percent for the employee share of payroll tax; it goes up to 6.2 percent.
* Top income tax rate goes up from 35 percent to 39.6 percent ($200,000 and over)
* New investment income tax of 3.8 percent is imposed to help pay for Obamacare
* Top rate on long term capital gains goes from 15 percent to 20 percent
* Top rate on qualified dividends goes from 15 percent to 39.6 percent
* Medicare tax (employee's portion) top goes from 1.45 percent to 2.35 percent
* Estate tax (the "death tax") and gift tax rate goes from 35 percent to 55 percent
But surely this won't stick, right? Some people making what is really an upper middle income in such high cost blue states as New York or California will be paying upwards of 60 to 65 percent of their income to government, at least when state and local income and property and sales taxes are included--maybe more. That can't happen, surely. But, in reality, the upper middle class is poorly represented in politics. These are farmers and small business owners trying to sell a business so they can retire. They are realtors and sales people working on commission, some years doing poorly, and others doing well (making them nominally "rich"). Cash in an IRA and--congratulations--you are "rich" this year!
The truly rich, however, will do what they have always done since the income tax was first adopted in 1913: find ways to move their wealth out of the country, into municipal bonds or other tax-free instruments or otherwise live well on a large sum of inherited or earned principal. As George Gilder's favorite economist, Thomas Sowell, writes,"In today's global economy, it is even easier (now) for genuine millionaires or billionaires to escape high taxes by investing in other countries. Not so for the other nine-tenths of the people hit with higher taxes, such as small business owners or independent professionals such as realtors or dentists, whose sources of income are necessarily local."
In other words, it's the people who aspire to become rich that will be squeezed. The result? Less margin for re-investment, less money for families to lend or give to children or grandchildren or to charity. Also hit by high tax rates that drive jobs overseas are "those who are unemployed and need jobs here." Include in this group the half of young college graduates who presently are unemployed or underemployed.
Remember, these tax increases are already slated by law to take effect.