Rich unlikely to sit and take tax hikes

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The rich are different from you and me, F. Scott Fitzgerald famously observed. And it’s not just because they have more money, as Ernest Hemingway equally famously responded. Unlike the rest of us, they don’t stand still for taxes.

That comes to mind with the proposals outlined in President Obama’s State of Union address Tuesday that would effectively codify the so-called Buffett Rule — that billionaires should not pay a lower tax rate than their secretaries. With the secretary of the chief executive of Berkshire Hathaway seated next to the First Lady, the president proposed that those earnings over $1 million pay a minimum 30% federal tax rate. That would mean no deductions for mortgage interest, health care, retirement savings or child-care benefits, although the deduction for charitable deductions would be preserved.

It also presumably would do away with the preferential treatment of capital gains and dividends, which for 2012 are taxed at a 15% top rate. As things stand, along with the Bush-era ordinary-income tax rates, those taxes on investments are slated to rise to their previous levels: 20% top rate on capital gains and ordinary-income rates on dividends, which would be as high as 39.6%.

Under Obama’s 2012 budget proposals — which at this point are just that, proposals — the hike on capital gains and dividends would be limited to 20% to “upper-income” tax payers, which would be married couples with 2013 taxable income over $241,900. Joint filers below that would still pay 15% on dividends and capital gains — if the Administration’s budget proposals are enacted. For higher earners, it would be 20% on cap gains and ordinary-income rates on dividends.

And don’t forget that “unearned income” will be subject to the 3.8% Medicare tax for couples with “modified adjusted gross income” over $250,000. That would apply to interest, dividends, annuities, royalties and rents.

Along with Occupy Wall Street, it’s apparent Washington has the so-called 1% of top earners in its sights. No matter that the top percentile already accounts for 37% of taxes. And Obama’s call for higher taxes on million-dollar earners comes as Republican presidential candidate Mitt Romney published his 2010 taxes, which showed he was taxed at less than a 15% rate owing to his income coming from dividends and capital gains.