Most of the attention around the Fiscal Cliff has been focused on income taxes.
The way the deal went down, a tiny portion of American taxpayers — households that earn more than $450,000 per year — will see their income taxes rise modestly, from 35% to 39.6%.
Everyone else's income taxes will stay the same.
But that's not the whole story.
By not addressing the payroll tax, the Fiscal Cliff deal will also result in a tax hike for all working Americans, including those in the middle and poor classes. All income up to $110,000 will now be socked with a 2 point increase in the payroll tax, from 4.2% to 6.2%, which will pluck $2,000 out of the pockets of families making $100,000 a year.
Meanwhile, thanks to a deal on dividend taxes, the highest earning Americans have gotten a massive tax cut over the taxes that would have taken effect had a Fiscal Cliff deal not been agreed to.
Dividend taxes for households making more than $450,000 per year will rise from 15% to 20% (plus an additional 3.8% surcharge for Obamacare, to a total of 23.8%). But they won't rise all the way to 39.6%, which they were scheduled to rise to without a Fiscal Cliff deal. Meanwhile, dividend taxes for those earning less than $450,000 a year will remain at 15% (18.8% with the surcharge, for those with income between $250,000 and $450,000). So the richest Americans have dodged a big tax bullet.
Importantly, the dividend tax deal will disproportionately help the richest Americans:
- 47% of all dividend income is earned by the 3.8% of American households that make more than $200,000 per year (2009 tax data).
- Households that make more than $200,000 collect a total of $70 billion of qualified dividends per year (2009). This tax change will save these households about $14 billion a year vs. the pre-deal tax rates.
- The top 400 highest earning taxpayers collect about $10 billion a year in dividends, or $25 million apiece. This tax change will save these folks a BOAT LOAD of money: About $2 billion in total, or an average of about $5 million apiece (2009 data).
In other words, the tax deal that Congress just agreed to will raise $125 billion from increased payroll taxes from all working Americans (poor and middle class alike), while saving the richest Americans at least $20 billion in dividend taxes.
Some of the folks who will save money on dividend taxes will obviously pay more on wage income, so there will be some balancing. But some won't.
So, be happy this morning, rich Americans!
This is a great deal for you!
SEE ALSO: DEAR AMERICA: Here Are Your New Tax Rates
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