Who Wants to Be a Millionaire? (Philippine game show) (Photo credit: Wikipedia)
Being a millionaire isn’t what it used to be. Even so, nearly everyone still wants to be one. In a Strange Bedfellows combination, President Obama, Speaker John Boehner and Warren Buffett all seem to be in sync about taxing them more.
With a fiscal cliff deal still not finalized, a 35% to 39.6% top tax rate hike will take effect January 1, 2013. Yet it’s widely assumed that a fiscal cliff deal will still emerge. If it does, the rate hike will only hit some.
Mr. Boehner shrewdly moved off his no-rate-increase stance. He proposed to extend all current tax rates and to raise them only on incomes above $1 million. Those top earners would face the jump from the current high of 35% to 39.6%.
Of course, President Obama has a long history of wanting tax increases on anyone earning over $250,000. But the President too has modified his view. Recently, he said that raising rates for those earning over $400,000 was enough. See In Tax Hike Haggle, Obama at $400K, Boehner at $1M: Now What?
Before the anticipated discussion of compromise figures between $1 million and $400,000, Mr. Boehner started talking about a Plan B. It is supposed to be an alternative to a fiscal cliff deal that would raise rates on incomes over $1 million. But President Obama and his administration appear to see Plan B as stonewalling or worse. And like it or not, Boehner's 'Plan B' Gets Pushback.
No matter how you slice it, tax increases for those earning over $1 million seem quite likely. Top rates will jump from 35% to 39.6% in January, and rate hikes at lower levels are still quite possible. Indeed, rate hikes for everyone are still scheduled and there is no imminent deal.
For long term capital gains, the current 15% rate jumps to 23.8% January 1. That's composed of the new 20% rate plus the 3.8% health care add on that will hit most with incomes above $200,000. See Obama Or Romney, Higher Capital Gain Rates Hit Soon. Although no deal has been struck, the fact that Mr. Boehner moved off his no-increase platform suggests that there can (still) be a compromise.
Mr. Obama may not get all he wants, and may have to exceed his new $400,000 threshold. Mr. Boehner’s $1 million benchmark may not stick either, despite his Plan B maneuver. See Fiscal Cliff Talks: GOP Poses Millionaire Tax-Rate Increase. As Rodney King would say, “Can’t we all just get along?”
Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
