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The Coming 69% Capital Gains Tax Increase May Be Even Higher

23rd December 2009
By versatile in Taxes
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Wall Street Journal editorial, A 69% Capital Gains Tax Hike . . . Pelosi's 5.4% Income Surtax Would Hit Capital Gains and Dividends:

House Democrats are funding their new entitlement with a 5.4% surtax on incomes above $500,000 for individuals and above $1 million for joint filers. The surcharge is intended to snag the greatest number of taxpayers to raise some $460.5 billion, and so the House has written it to apply to modified adjusted gross income. That means it includes both capital gains and dividends.

That surtax takes effect on January 1, 2011, or the day the Bush tax rates of 2001 and 2003 expire. Today's capital gains tax rate of 15% would bounce back to 20% because of the Bush repeal and then to 25.4% with the surtax. That's a 69% increase, overnight. …

Some readers may think that this 5.4% surtax can't possibly make it into a final Congressional bill due to Senate opposition, but we wouldn't be so sure. Mr. Obama hasn't said so much as a discouraging word about the House bill. And we've seen in the past 10 months that when Mr. Obama's campaign promises clash with the priorities of House liberals, the liberals always win.

Bloomberg, Orszag Says Capital Gains Medicare Tax ‘in Play' on Health Bill, by Ryan J. Donmoyer:
White House Budget Director Peter Orszag said a proposal to apply Medicare taxes to capital gains earned by wealthy Americans as part of health-overhaul legislation is "in play" in order to scale back a proposed levy on high-end insurance plans. … Aides to Senate Majority Leader Harry Reid have sought input on the idea ….

Reid's proposal, being advanced by Senator John Kerry, a Massachusetts Democrat, would apply Medicare taxes to non-wage income earned from capital gains, dividends, interest, royalties and partnerships for U.S. couples earning more than $250,000, the aides said. He's also considering an alternative that would simply increase the 1.45 percent Medicare tax on salaries of couples who earn more than $250,000, one of the aides said.
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