Tax Deal Hits High-Income Earners, But Not as Harshly as Expected

Posted by adaniels in Blog on January 8, 2013

The deal Congress made to avert the pending fiscal cliff could have been “much worse” for people in high-income brackets, Financial Advisor Magazine reports. While the deal raises taxes on high earners, it did not extend as harshly on wealthy people as expected. The deal also kept the tax code’s exemptions for estates and gifts, something some had feared would be eliminated.

The fiscal cliff deal passed by Congress last week has $600 billion in increased taxes, as well as spending cuts. The top tax bracket, which covers couples who make over $450,000 a year, or singles that make over $400,000 a year, now face a tax bracket of 39.6%.

Christopher Zander of Evercore Partners told the magazine that “the increases in taxes and limits to deductions are more favorable than expected.” He said that the fiscal cliff deal could have been much worse for wealthy people.

However, the deal raise taxes on those making between $250,000 to $450,000 a year, even if those who make over $450,000 a year didn’t get as bad a tax hit as they expected. In addition, capital gains and dividends went up from 15 percent to 20 percent. There will also be a 3.8 percent surtax on investments by high-income people, to pay for President Obama’s health care law.

There were concerns about the complexity of the deal. “There were hopes that there would be more simplicity to the tax code,” Zander said. “It has now become even more complex.”

Written by Lisa Swan

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