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Subject:  New Tax on Retirees proposed Date:  7/10/2009  12:28 PM
Author:  notehound Number:  15236 of 19483

Partial repost from Retire Early Campfire -

RE: Proposed Surcharge on Interest and Dividend Income

FYI to those living on interest income, dividends and capital gains, a new tax is proposed to pay for healthcare:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOjv...

A surcharge on interest income (as well as dividends and capital gains of all types) would make investors unhappy with yields near 0% on certain types of government debt. Based on this possible (and I think very likely) source for additional funds to pay for national health care, I expect that investors will be dissatisfied with extremely low yields on Treasury Obligations or on long-term debt.

Of particular concern is the proposal that interest & dividend income and short-term capital gains be taxed at rates HIGHER THAN ANY OTHER form of income. I don't see any possible way that this sort of proposal won't increase long-term interest rates. It certainly will hurt traders and those who have been socking away their money in CDs.

A few more moderate proposals include imposing the tax surcharge on only those "wealthy" individuals whose gross income from all sources exceed the princely sum of $106,000 per year. People like Paris Hilton, who was specifically referred to in justifying the surcharge tax on interest and dividend income.

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Here's an excerpt from the Bloomberg story:

"July 10 (Bloomberg) -- The Senate Finance Committee is considering whether to apply Medicare taxes to capital gains and other non-wage income to help pay for an overhaul of the U.S. health-care system, two people familiar with the talks said.

The move could raise hundreds of billions of dollars in revenue over the next decade by boosting taxes by 1.45 percentage points on income from dividends, interest, partnerships and rentals, the people said. Dividends and long- term capital gains are now taxed at 15 percent.

The proposal, modeled after a plan released this week by Citizens for Tax Justice, would force people living off investments to contribute taxes to the health-care system, said Steve Wamhoff, legislative director for the Washington research group. The plan was broached July 8 in a closed-door meeting of Finance Committee Democrats, according to people in the room.

“If the only income Paris Hilton gets is capital gains, stock dividends, interest and other types of investment income, currently she is completely exempt from the one big tax we have right now that is dedicated to health care,” Wamhoff said. “We’re saying that probably doesn’t make sense.”

Medicare taxes are now assessed only on wages and self- employment income."

On the Medicare tax, Citizens for Tax Justice proposed subjecting all forms of income to the 1.45 percent levy, and increasing the rate to 2.5 percent for Americans who earn more than $200,000 a year, while exempting most senior citizens’ investment income. The proposal would raise $500 billion over 10 years, Wamhoff said.

Other Proposals

According to people in the Senate meeting, lawmakers are discussing a more modest proposal. One tack would be to add the Medicare tax only to investment income. For most capital gains and dividends, that would push the maximum tax rate to 16.45 percent. Interest and capital gains for assets owned for less than a year would face rates as high as 36.45 percent.

Another proposal would be to tax other forms of “earned” income currently exempt from the levy, such as proceeds from partnerships and rental property, according to the people. That income also faces a new top rate as high as 36.45 percent.

Lawmakers discussed applying the tax only to higher-income earners, one of the people said. Applying the Medicare tax to investment income earned by people who make more than $106,000 would generate almost $100 billion in revenue over a decade, the person cited one estimate as saying..."
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