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Obama’s New Tax Plan. Will It Raise Your Taxes?

The President is moving aggressively to combat our economic crisis, and as promised, this will have some impact on our taxes.  Basically as President Obama warned, the middle-class will pay less, and the rich will pay more.  The plan includes approximately one trillion in tax increases over the next decade on earners that make over $250k a year.  To put it into perspective, a couple with children and a joint income of $500k a year would see a tax increase of about $11,300 per year if all the provisions are passed.  A few specifics –

• The top two tax rates increase from 33% to 36% – and from 35% to 39.6% starting in 2011.
• There will be additional limitations of deductions and exemptions.
• Tax rates on capital gains and dividends will increase.

It is especially interesting to note that in the midst of our real estate crisis, there is a move to lower the value of deductions on home interest. Households that currently pay in the highest tax rates of 33% and 35% would only be allowed to deduct interest at the 28% rate.  On the surface this would seem counter to our goal of getting the real estate market moving again, but Obama’s experts point out that it is primarily the well-off that benefit from this deduction (households with an income of $200k or more account for 30% of all mortgage deductions), so in all likelihood this would not negatively impact real estate sales.

This is a tricky dance for the President.  On one hand he needs to raise taxes, but in such a way that he doesn’t eliminate incentives that keep business Warriors moving the economy forward.  But if there was ever a time in history when a President had the political capital to pull this off – I think it is now.  I was in San Francisco last night having dinner with a very wealthy friend, and we both agreed that we would happily see our taxes increase to get the economy moving.  A few thousand dollars a year in taxes seems like a good investment if it can solidify the economy, and help the stock market gain ground on the massive losses.

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One Response to Obama’s New Tax Plan. Will It Raise Your Taxes?

  1. don says:

    tim…..by looking at the presidents cabinet and some hopefuls that didnt make it, paying more taxes might be a problem………………don

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