Cap Gains Rate Set To Rise

http://www.futureofcapitalism.com/2012/01/cap-gains-rate-set-to-rise

Donald Marron reports that on January 1, 2013, capital gains taxes are scheduled to go up sharply from the current 15% rate:

First, the 2001 and 2003 tax cuts are scheduled to expire. If that happens, the regular top rate on capital gains will rise to 20%. In addition, an obscure provision of the tax code, the limitation on itemized deductions, will return in full force. That provision, known as Pease, increases effective tax rates on high-income taxpayers by reducing the value of their itemized deductions. On net, it will add another 1.2 percentage points to the effective capital gains tax rate for high-income taxpayers.

And that's not all. The health reform legislation enacted in 2010 imposed a new tax on the net investment income of high-income taxpayers, including capital gains. That adds another 3.8 percentage points to the tax rate.

Put it all together, and the top tax rate on capital gains is scheduled to increase from 15% today to 25% on January 1. That's a big jump. If taxpayers really believe this will happen, expect a torrent of asset selling in November and December as wealthy taxpayers take final advantage of the lower rate.

I'd predict the torrent of asset selling would actually come in September and October if pre-election, post-convention polls show a political outcome in November (i.e., an Obama lead) that dictates those capital gains tax increases will actually come to pass rather than be averted by a new Republican president and Congress or by, as at the end of 2010, a Democratic president chastened by a Republican congressional victory. That is part of what happened in 2008.

The Wall Street Journal also has an editorial on the capital gains rate, with echoes of the post here the other day. The Journal points out that President Obama's proposal of a new 30% minimum tax rate for those with $1 million or more in income would raise the rate to the highest level it's been at since that idyllic era, the late 1970s.

Link via Economic Policies for the 21st Century.

by Editor  |  Jan 26, 2012 at 10:02 am Related Topics:  Politics, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list