Tax Rates

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A Rate of Your Own

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On January 1, Congress passed a bill to keep the government from leaping off the so-called "fiscal cliff" — a set of tax hikes so devastating that Washington insiders warned they would ricochet through the economy, plunge us back into recession, and possibly even send the earth spinning into the sun. That bill included raising the top marginal rate on taxable income over $400,000 ($450,000 for joint filers) from 35%, where it had stood for the last 12 years, to 39.6%.

39.6% may sound like a lot today. But it's still really quite low, as far as top rates are concerned. Back in 1935, the nation was mired in the depths of the Great Depression. Inflation was 3.71% and unemployment stood at a whopping 21.7%. As for taxes, the top rate reached 79% on income over $5 million (roughly $85,672,000 in today's dollars). But — and this is a pretty big but — according to tax historian Joseph Thorndike, just one person actually paid that rate: billionaire John D. Rockefeller, Jr.

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Sneaky Sneaker Tax

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Today's tight economy is forcing governments at every level to stretch for new revenue, with varying degrees of success. In Washington, the dysfunctional family known as "Congress" just raised the top income tax rate to 39.6%, and there are new taxes on earned income and investment income as well. But when President Obama proposed cutting loopholes to raise even more money as an alternative to the budget sequester, his idea was met mostly with scorn.

Most state governments are in fiscal hot water, too. But Illinois may be worst off of all. Nearly $100 billion in unfunded pension liability is crushing the state budget. Last week, the bond ratings agency Standard & Poor's downgraded the Land of Lincoln's score to last in the nation. Ratings rival Moodys ranks Illinois at the same level as the

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More Than Meets the Eye

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We usually try and keep these dispatches light and entertaining. We know you'd rather read about "Tax Strategies for Somali Pirates" than, say, the latest regulations governing domestic international sales corporations. But every so often it's time to put on our serious face, and this is one of those times.

By now, of course, we all know that Congress spent their New Year's crafting a last-minute deal to avoid a "fiscal cliff" disaster. The "American Taxpayer Relief Act of 2012" extended the Bush tax cuts, permanently, for incomes up to $400,000 for single filers and $450,000 for joint filers. Ordinary income above those thresholds will be taxed at 39.6%; corporate dividends and long-term capital gains will be taxed at 20%. The Alternative Minimum Tax is "patched" for good, and the estate tax is eliminated for estates under $5 million.

If your income isn't quite that high, you may think you've just dodged a bullet. But the sad reality is, you're probably already paying more tax, even if your income is nowhere near $400,000:

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Dying to Save Taxes?

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2013 is here, and after months of post-election sound and fury, we took a quick "test leap" off the dreaded "fiscal cliff." Look out below!

By this point, we're all familiar with the income tax consequences of the cliff. The Bush tax cuts expired, as scheduled, on December 31, sending everyone's taxes up. The 2% payroll tax holiday expired at the same time, with no hope of resuscitation. The Alternative Minimum Tax (AMT), which up until this week had never been indexed for inflation, still hadn't been "patched" for 2012, meaning it would catch 27 million more Americans in its claws. There are even new Medicare taxes and a 3.8% "unearned income Medicare contribution" on earned income and investment income for individuals earning over $200,000 and joint filers earning over $250,000. (Okay, those new Medicare taxes aren't technically part of the "fiscal cliff" -- but they don't give upper-income earners much reason to cheer 2013, either!)

But the fiscal cliff also threatened some dramatic estate tax changes as w

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By Any Other Name

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In Shakespeare's classic drama Romeo and Juliet, star-crossed protagonists from feuding families meet and fall in love. In Act II, when the impossibility of their courtship has become clear, Juliet leans out her balcony and declares to her lover "What's in a name? That which we call a rose by any other name would smell as sweet." The line, of course, implies that Romeo's last name should mean nothing, and the two should be together.

Shakespeare may or may not have been right about love and roses. But what about taxes? Does that which we call a "tax," by any other name smell as sour? Apparently, Washington thinks not — if you pay attention to all the new euphemisms, you'd think Washington has given up imposing new "taxes" entirely!

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A Different Kind of Black Friday Savings

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Last week marked the celebration of our most uniquely American holiday. No, silly, we're not talking about Thanksgiving. We're talking about Black Friday, our national homage to consumerism, conspicuous consumption, and all things capitalist. Walmart and other "big box" retailers pounded a final nail in Thanksgiving's coffin, opening at 8PM that night so shoppers could skip out on the pumpkin pie to save a couple hundred bucks on a flat-screen TV.

And this year, Walmart founder Sam Walton's heirs, who still own 48% of the company, have taken a lesson from their own shoppers. Only, the Waltons aren't just saving hundreds. They've found a way to save millions, just by accelerating a regularly-scheduled dividend payment from January 2 to December 27. (Apparently, they think "everyday low prices" applies to their tax bills, too!)