Tax doom looms for American investors even if Congress does nothing for the rest of this year, writes columnist Amity Shlaes.
The pundit and author observes taxes will go up early next year with the top rate on the income tax increasing to 39.6 percent from 35 percent today.
“If you include phase-outs of exemptions, the top rate will really be more than 40 percent,” Shlaes wrote in a recent column for Bloomberg.
“The special election in Massachusetts of Scott Brown to the Senate will charge up his Republican colleagues, but probably not enough to enable them to halt the expiration of the Bush-era cuts on the top rates.”
This is not simple speculation — this is assured, she adds. “It is already inscribed in the almanac,” writes Shlaes.
The columnist writes that inaction on the top income tax rates in 2010 will impact dividends, where the rate increase will be even more dramatic.
The tax rate on dividends now is at 15 percent, the same as the capital gains rate.
But the special treatment likewise expires in December.
“Without new legislation, the rate will increase some 25 percentage points. That’s because dividends will again be treated, as they were historically, as ordinary income, and taxed at 39.6 percent rate. In other words, a double whammy,” writes Shlaes.
Some skeptics may claim that dividend taxes have been high before, and there was no financial Armageddon.
“But it is the rate of increase that matters, rather than the absolute level,” writes Shlaes.
“If the Senate follows its traditional pattern it may, with Brown’s help, manage to curtail the tax increase on dividends. But the operative word is “may.”
Brown, after all, is inexperienced — no political Peyton Manning, not to mention a Jack Kemp.”
There are other tax policy changes being floated by the Obama administration, including a proposal to limit charitable deductions and other deductions for taxpayers.
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