Congress also reinstated limits on itemized deductions and personal exemptions for top earners.
On top of all that, tax increases for the highest earners from the 2010 Affordable Care Act took effect in 2013. That amounts to a 3.8 percent tax on net investment income and a 0.9 percent tax on wages. Those taxes start at $250,000 of annual income for married couples and $200,000 for individuals.
A married couple with about $915,000 in annual income will pay $277,426 in payroll and income taxes for 2013, up 12 percent from 2012. That’s according to an example created by the Tax Policy Center in Washington.
Those Affected
The people affected by the tax increases include corporate executives, lawyers, doctors and people who report their business profits on their individual tax returns.
The tax increase constrains cash flow for the most successful small businesses, especially those with limited access to credit, and it’s one reason why the economic recovery has been slow, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office.
“It would have been a good idea to get everyone back to work before you decided to redistribute the income,” he said. “You’ve raised the marginal tax on the return to both high- income labor and high-income saving and investments. There’s a clear incentive to do less of that.”
Kevin Maloney, president of Northeast Express Transportation Inc., a courier business in Windsor Locks, Connecticut, said the tax increases have affected his company. Maloney said his company, organized as an S corporation, generates a little less than $5 million a year in gross revenue and that he isn’t in the top tax bracket.
Politicians who support tax increases operate under a misconception that there is little real effect, Maloney said.
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