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Sticking it to the Middle Class

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

Easily duped, millions of voters dutifully believed Barack Obama's and the Democrats' campaign rhetoric that they only wanted to raise taxes on millionaires and billionaires – out of “fairness”.   But, once re-election was in the bag, things changed.  Surprise!


Instead of "protecting the middle class" as the campaign blather promised, Obama insisted on a 2 percent increase in the payroll tax as part of the final legislation.  That will mean significantly higher tax bills for every working family regardless of income level.  For someone making $50,000 per year, the government will be taking an additional $1,000 out of their paycheck. 

But, as the Wall Street Journal reports, there is more.  Scores of moderately successful Americans will get nailed by other provisions of the bill.

Obama campaigned on a plan to increase income tax rates on individuals making above $200,000 or couples above $250,000.  Republicans balked, so the President eventually "compromised" at $400,000 and $450,000.  But, it wasn't a compromise after all.

Obama insisted – and Republican leadership apparently agreed – on reviving two dormant 1990's era caps on exemptions known as PEP and Pease for individuals making $250,000 annually, or joint-fillers above $300,000.  The net result of the "compromise" will mean even higher total tax payments to the federal government for affected taxpayers than if the Bush Tax Rates simply had been allowed to expire.   

If you didn't hear any mention of this before, there is an all too familiar Washington explanation: They had to pass it so we could find out what was in it. 

In fact, it is completely conceivable that the politicians had little idea what was in the 154 page bill, either.  As has been reported by CNSNews.com, "senators received the bill at approximately 1:36 AM on Jan. 1, 2013 – a mere three minutes before they voted to approve it at 1:39 AM." The House voted about 20 hours later.


Following are key excerpts from the WSJ editorial regarding the PEP and Pease phase outs appropriately titled, "The Stealth Tax Hike: Why the new $450,000 income threshold is a political fiction."

During the negotiations, the White House won a concession from Republicans to allow phase outs for personal exemptions and limitations on itemized deductions [PEP and Pease], starting at an income of $250,000 for individuals and $300,000 for joint filers.

The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.

High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony's development office.

Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.

A store manager married to a dentist with a combined income of, say, $350,000 may pay a higher tax rate under the new law than if the tax code had simply reverted back to the Clinton-era rates that Mr. Obama championed. Those earning more than $450,000 would see their de facto tax rate rise to about 41% under the new law, not 39.6%. Add in the new ObamaCare investment taxes and the tax rate on interest income is close to 45%.....


Some $150 billion, about one-quarter of all the money raised by this tax bill, will come from this stealth tax hike.

Mr. Obama purports this is merely "a return to the Clinton-era tax rates." But capital-gains rates will be about three to five percentage points higher than in the 1990s, the Medicare tax is higher, and his stealth tax will raise personal rates higher than advertised. Forget the golden Clinton memories. Mr. Obama is pushing the U.S. back to the Carter era. Read more

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