patrick.net

Most people don't realize that the bush tax cut will expire Jan 1, 2013. With Obama just newly re-elected and public sentiment, the rich will be soaked, the only question is how much and will they drag the middle class along with it.

In 2010, Obama was in a weaker position, weaker economy, political party was losing ground and he himself was mindful about his own re-election. The republicans was able to extend the Bush tax cuts for all for two more years. Obama, as of 2012 and 2010 wanted them to be extended for the 200/250K household. In 2010, he failed his goal.

That scenerio will not shake itself out in 2012. The Bush tax cut will expire. As openly stated, Obama wants to extend it for the middle class just as he stated for as long as he was president. It's a matter of politics whether he can succeed in extending it for the middle class. There is no scenerio that the rich will not pay more, its just a matter of winning other concessions by dragging the middle class to dilute their prospective pain.

The bush tax cut will be particularly painful for 100K earner which will lose the 10%-15% tax bracket and will end up paying approx 5K more in income tax. Combine that with the expiration of the payroll tax expiration for another 2K and we are talking about 7% gone. For a 300K household, it will cost about 7K-8K as well, but 7K-8K now is 2.5%. The R knows this will anger the 100K earners so perhaps they are banking on don't do it because we will hurt you more strategy.

The bush tax cut will be painful for the wealthy as well, not so much the tax bracket as it is 3-4% across the board, but will be felt in the treatment of capital gains and investment income. Dividends will be particularly painful but capital gains will go up to from 15% to 20%. In the end, that 13% ETR Romney enjoys will be more like 19%, that just increased his tax by 50% and tough to avoid unless we are talking illegal type stuff. They can of course buy tax exempt municipal bonds which will benefit state and local governments.

So I guess my advice to Obama, not that he would pay attention is, do not negotiate with the R's demand to dilute it down. Expiring tax cut will cost me 10K more or maybe a 20% tax increase. Expiring the tax cut for the rich will cost the Romney's 50% on a much higher base.

If it comes down to it, just let the entire damn Bush tax cut expire. There's nothing the house can do to stop that.

Based on my understanding of how the rich works and invests, they will still go after every dollar possible and treat business as usual, stock market will adjust and will be fine. The theory that people/business will stop investing in America is laughable. Business will always invest in America, just as you will see Mercedes, Samsung and other exploit this market. It's a 15T GDP, market business will never ignore America.

#politics