A Few Post Election Thoughts

Well the big election is over. I have been sick with the flu so delayed in my comments. Obama will be our President for another four years and the House and Senate are still divided. In short nothing has changed – or has it?

Clearly Obama has learned nothing from the election and shows no signs of changing anything. And truthfully why should he? He is a lame duck President and has a specific agenda he wants to accomplish and he will. Nothing anyone did or said in the first term deterred him in anyway so why should he change now? He won by a big margin; the women and Latinos love him and who cares if he drives the economy down. After all the only people bitching in the US are the darn rich Republicans.

Has Congress learned anything from the election? I doubt it. The Senate will shoot down everything that comes from the House and the only things they will try to shove through the House will be entitlements and increased taxes on the “rich”. I don’t see any miraculous bipartisanism happening in DC in the next four years because no one on either side has any reason/motivation to do it. So the President will blame the Congress, abuse his Executive privilege when needed and the House and Senate will blame each other. The Democrats will say the Republicans are obstructing their path to fixing the country and the Republicans will say they can’t sign off on more government, debt and taxes.

So what will get done? Big tax increases, a lot more spending, bigger government and more lies and partisans’. I doubt most Americans know what taxes are coming. So I thought I would share a few for everyone’s review and digestion (or regurgitation if you make over $250K).

2013 New Taxes

Personal income tax rates will rise on Jan. 1, 2013. The top income tax rate will rise from 35 percent to 39.6 percent. (This is also the rate at which the majority of small business profits are taxed.) The lowest rate will rise from 10 percent to 15 percent. (all this is barring a miracle compromise in Congress and the extension of the Bush tax cuts).

All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
— The 10 percent bracket rises to a new and expanded 15 percent
— The 25 percent bracket rises to 28 percent
— The 28 percent bracket rises to 31 percent
— The 33 percent bracket rises to 36 percent
— The 35 percent bracket rises to 39.6 percent

Higher taxes on marriage and family coming on Jan. 1, 2013 include the “marriage penalty,” narrower tax brackets for married couples, which will return from the first dollar of taxable income. The child tax credit will be cut in half, from $1,000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level.

The Middle Class Death Tax returns on Jan. 1, 2013. The death tax is currently 35 percent, with an exemption of $5 million, or $10 million for married couples. For those dying on or after Jan. 1 2013, there is a 55 percent top death tax rate on estates valued at more than $1 million.

Higher tax rates on savers and investors on Jan. 1, 2013. The capital gains tax will rise from 15 percent this year to 23.8 percent in 2013. The top dividends tax will rise from 15 percent this year to 43.4 percent in 2013. This is because of scheduled rate hikes, plus Obamacare’s investment surtax (see below).

New Obamacare Taxes

The Obamacare Medical Device Tax begins to be assessed on Jan. 1, 2013. Medical device manufacturers employ 409,000 people in 12,000 plants across the country. This law imposes a new 2.3 percent excise tax on gross sales—even if the company does not earn a profit in a given year. Exempts items retailing for less than $100 although I can’t think of many medical devices that cost less than $100?

The Obamacare Medicare Payroll Tax Hike takes effect on Jan. 1, 2013. The Medicare payroll tax is currently 2.9 percent on all wages and self-employment profits. Starting in 2013, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8 percent rate.

The Obamacare change to Medical Itemized Deductions goes into force on Jan. 1, 2013. Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only.

The National Association of Realtors has provided examples of different scenarios for which a 3.8 percent tax on real estate—passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Obama’s health care and Medicare overhaul plans—could be applicable. This tax will not be imposed on all real estate transactions; rather, when the legislation becomes effective in 2013, it may impose a 3.8 percent tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an AGI above $200,000 and couples filing a joint return with more than $250,000 AGI.

More Taxes 2013 and Beyond

The Individual Mandate Tax -- In 2014 this penalty will hit all Americans who are not covered by a private health insurance policy, Medicaid, Medicare, of other public insurance program. The penalty requires a couple to pay the higher of a base tax of $1,360/year, or 2.5% of adjusted growth income (AGI). In 2016 the cost of not being part of Obamacare is $695 for individuals and $2,085 for families.

The Medicine Cabinet Tax -- This tax (begun in 2011) prohibits reimbursement of expenses for over-the-counter (OTC) medicines, with the exception of insulin, from an employee's Health Saving Account (HSA), Flexible Spending Account (FSA), or Health Reimbursement Account (HRA). This impacts the shrinking middle class hard, since they earn enough to actually pay federal taxes, but not enough to make this a negligible restriction. This is also another backdoor attempt to limit access to alternative medicines (vitamins and nutritional supplements).

The HSA Withdrawal Tax -- This tax increases the additional tax on early non-medical withdrawals from these types of accounts from 10% to 20% in 2013.

The Indoor Tanning Services Tax -- Begun in 2010, this provision added a 10% excise tax on people using tanning salons.

The Excise Tax on Comprehensive Health Insurance Plans or the "Cadillac" Health Insurance Plan Tax -- So-called Cadillac plans are generally fully paid for by employers. This tax, delayed until 2018 to protect Obama's union supporters, will impose a 40% excise tax on the recipients when fully enacted. Interestingly this tax will actually hurt Obama supporters more than typical Americans because none of us can afford these rich benefit programs. Only unions and Federal employees have these type of benefits.

The Internal Revenue Service will be the implementer and enforcer of PPACA (up to 16,000 new agents). The Act will be partially paid for by taking $716 billion from Medicare and Medicaid; AARP claims that the money is taken from doctors and hospitals, but the lower payments to health care providers will reduce the services that Medicare patients receive. Additionally, these lower reimbursements from Medicare will cause massive cost shifting to the private health plans resulting in much higher premiums over time. Worst of all is the fact that the group who will decide what these cuts is a board appointed by the President that does not include any doctors or insurance experts!

The Congressional Budget Office reports that costs will rise for all Americans; and, more than 30 million will remain uninsured when Obamacare is fully implemented. The CBO further predicts that the average family's insurance premiums will rise at least $2500/year, in spite of candidate Obama's repeated promises that they would go down that same amount. So the premiums have already increased about $2500 a year for a typical family and when fully implemented we can expect another $2500 a year. But there is good news, however, as all illegal immigrants will be exempt from the health insurance mandate and, yet, will remain eligible for emergency services under the 1986 Emergency Medical Treatment and Active Labor Act (EMTALA).

So we have some fun times ahead. I wish I could say I see any evidence of commensurate cuts in spending to offset all this new taxation but I don’t. Actually the CBO is saying that based on current budget projections the deficit will be over $20 trillion when Obama leaves office in 4 years. This is not surprising since he increased the debt $5 trillion in just three and half years. He holds the distinction of having the highest deficit ratio of any modern president – more than double the much maligned GW Bush. (see below)

 

So for all of us – those who voted for him and against him – open your wallets and suit up because you are going in for a very tough inning. Play Ball!