Maybe We Should Go Over the Cliff

The writers of this article make a pretty good case for going ahead and diving off the so called "fiscal cliff".  In my opinion, allowing tax rates to be raised on the "rich" without any spending cuts will not help the economy.   One often ignored point that is that many of the "rich" (those making over $250,000 per year) are small business owners.  They own proprietorships,  limited liability companies or Subchapter S corporations, all of which are pass through entities.  That means that the income of the business shows up on the tax return of the owner(s). 

Most business owners I know use about 40% of the profits they make to pay income taxes and plow the rest back into the business.  If tax rates go up on these businesses, that will result in less cash to be invested in growing the business (and more to the government).  In this very fragile economy, that doesn't seem like a good plan for turning things around.    

The Election Results and Taxes

Now that the presidential election is over, the country has spoken (or at least 51% of the people).  Tax increases may likely be the way of the land in 2013.  Even John Boehner, Speaker of the House, has recently indicated he would be willing to accept “new revenue” (i.e. tax increases) and that Obamacare (with all of its new tax provisions) is now the “law of the land”.   Top statutory tax rates in 2013 are currently scheduled to increase 13% (35% to 39.6%).  With the new Obamacare taxes, the top rate could be 43.4% in certain cases.  The top tax rate on dividends will increase from 15% to 39.6% (or 43.4%), and the top rate on capital gains will be as much as 23.8%.  Combined with state and local taxes, many people’s combined effective tax rates will be over 50%.

Joe Johnston, partner in charge of our tax department, will be attending a post-election “think tank” meeting in Atlanta next week.  Some of the best tax minds in the country will be discussing the likely course of tax policy in future years.  Joe will report back to me you once he returns with suggestions on how to best prepare for the increased tax environment.

In the mean time, if you have specific concerns about your tax situation before year-end, please contact me.  I would be glad to sit down with you to discuss this topic based on your specific circumstances.