Tuesday, March 23, 2010
Accounting giant Deloitte has pumped out a plain English tract(pdf) on the revisions to the tax law embedded in the health care "reform" bill just passed. It just got a lot more expensive to
earn a lot of money make a disproportionate contribution to gross domestic product.
Social Security taxes are only imposed on wages up to a certain amount ($106,800 for 2010). This cap is subject to indexation for inflation. Today, a taxpayer is subject to a wage tax of 7.65 percent until he or she reaches the wage cap and then the payroll tax drops to 1.45 percent. Under the Act, the payroll tax will go up once the individual receives $200,000 in wages, in effect, to 2.35 percent. If this wage cap were to increase by 3 percent a year, then, because the threshold is not indexed, by the twentieth year of the new 0.9 percent HI tax (2032), the HI tax would apply to some income to which Social Security taxes also apply. In that case, an individual would be subject to a tax of 7.65 percent until he or she reached $200,000 of wages, then the wage tax would go up to 8.55 percent. Once the wage cap is reached, the tax would drop to 2.35 percent.
Thats about $2k per month for my family. This isnt even funny. I mean seriously not funny. Sometime you can laugh at the congress critters... Im not laughing anymore.
The fiction that payroll taxes are an insurance program for the working man is shattered, they are now a general-purpose supplementary income tax. I can't wait until the rates go up and thresholds go down while our politicians loudly proclaim it's ok because "we didn't raise income taxes".
If this is not repealed, it will be only a short matter of time before the full 15.3% payroll tax is applied to investment income, like some European countries do. Since annuities are subject to the new Medicare tax, IRAs and 401k plans will probably be targeted next.
Good point about IRAs, Randian. All the more reason to bear as much income-tax pain as you can now by converting your traditional IRA to a Roth IRA. If Congress later starts taxing Roths, it's only a short step to a wealth tax, then God help us all.
If Congress later starts taxing Roths, it's only a short step to a wealth tax, then God help us all.
Taxing Roths would be incredibly unpopular, though I don't think these bozos care. They'll just whine that only "rich" people have Roths, so it's OK to break their promise that withdrawals won't be taxed. They might even apply a means test (income, account value, or both) on the tax to get the votes of the class envy crowd.
They're already floating something much worse than an income or wealth tax on defined-contribution plans: "helping" retirees by forcibly exchanging the assets of their IRA & 401k accounts with Treasuries.
via Neal Boortz, a story reporting the SEIU proposal to seize private retirement accounts.