(Bloomberg News) The year 2013 may snap a 12-year winning streak for wealthy Americans on taxes due on income, capital gains, dividends and giving money to their heirs.
The U.S. deficit, forecast by the nonpartisan Congressional Budget Office to reach a two-year cumulative total of $2.5 trillion in 2012, has prompted calls by some in President Barack Obama's administration, Congress and a bipartisan commission to limit tax breaks for home mortgage interest, charitable contributions, municipal bonds and retirement contributions.
"The deficit is an issue," said Bill Fleming, managing director at New York-based accounting and advisory firm PricewaterhouseCoopers LLP. Many wealthy taxpayers "have already decided in their minds that something is going to happen and they're going to pay higher taxes."
Rates on income, capital gains and dividends will rise in 2013 because tax cuts extended last year are scheduled to expire at the end of 2012, unless Congress acts. In 2013, top earners also face additional levies on unearned income and wages to help pay for health-care reform.
Obama has proposed letting income-tax rates increase to as much as 39.6 percent from 35 percent for couples making more than $250,000 annually or individuals earning at least $200,000. Capital gains and dividends would be taxed at a top rate of 20 percent, up from 15 percent. The highest earners face an additional 3.8 percent tax on unearned income such as realized capital gains, plus a 0.9 percentage point rise in the Medicare payroll tax on wages starting in 2013 as part of the health-care bill passed in March 2010.
Poll on Taxes
A majority of Americans favor increasing taxes on the wealthy, at least two polls this year found. A Quinnipiac University poll released May 4 said 69 percent of voters back raising taxes on households earning $250,000 or more, while a March Bloomberg National Poll reported the figure at 59 percent of respondents.
For a married couple with two children in Connecticut, which has the third-highest state and local tax burden in the U.S., the increase in rates Obama has proposed, along with levies from health-care reform, mean their tax bill may jump to $142,160 in 2013 from $126,410 this year, or 12.5 percent, according to an analysis Fleming ran for Bloomberg News.
That's based on $485,000 in earnings, $2,000 in interest on investments, $3,000 in dividend income and $10,000 in long-term capital gains, and the following deductions: $20,000 in mortgage interest and charitable donations of $10,000, said Fleming, who works for PwC's private company services tax group in Boston and Hartford, Connecticut.