For those who weren't aware: Top federal income tax rate now 45 percent, top capital gains tax up 10 percentage points

From Politico:

. . . Democrats have pushed through several new taxes on the well-to-do — many coming online this year — making the top tax bite steeper than advertised. By how much is a matter of opinion, but some experts say the true top rate is about 45 percent — 5 percentage points higher than the usual sticker price or higher still depending on what’s included in the mix. . . . 

Taxes on capital gains, for example, top out at 25 percent, once various surcharges are included, a sharp increase from 2012. . . . 

Thanks to quirks in the law, some may be subject to the tax but not paying it while others who are exempt may nevertheless be paying it, said David Kautter, managing director of the Kogod Tax Center at American University. . . . 

The health care law also imposes a new 3.8 percent “net investment” tax on capital gains, dividend, interest and other investments, in addition to the regular 20 percent capital gains tax. That’s expected to generate $123 billion over a decade. . . .  

That will cut the after-tax income of the top 1 percent, who earn at least $506,000, by about $50,000 or about 4.5 percent, according to the Tax Policy Center. The bite is much bigger for the very rich. Those who earn at least $2.6 million, enough to put them in the top one-tenth of 1 percent, will lose about $322,000 or about 6.2 percent of their income. . . . .

Hurting the little guy: Obama makes it easier for waitresses' tips to get stiffed by patrons

Many restaurants automatically add tips to the tab for large parties.  There are obvious reasons for this.

1) When there is a large amount of money at stake patrons might be more likely to skip out on payment.
2) When you have a large party there is a potential problem of free-riding.  Suppose that you have a party of eight.  Each patron hopes that if the other seven patrons pay a tip, they might hope that them not paying their tip wouldn't be noticed if everyone else paid theirs.

From the WSJ:

. . . Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income. 

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully. 

Darden Restaurants Inc., owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman. . . .

Good thing that Obama is going after those tax cheating wealthy waitresses and waiters!

Obama makes wealthy Americans flee the country at the same time he is offering asylum for uneducated people

Obama's Foreign Account Tax Compliance Act of 2009 is having a real impact, scaring away many of the most productive Americans.  At the same time we are offering asylum for poorly educated foreigners we are scaring away many brilliant minds.  From the WSJ:

The U.S.'s crackdown on global tax evaders is leading to a record number of people renouncing their citizenship, and its effects are being felt keenly in Asia—now the world's wealthiest region by household assets.
A growing number of wealthy Americans in Asia—and others with green cards—are exploring whether to renounce their U.S. citizenship or give up their green cards to avoid onerous tax obligations.
Globally, more U.S. citizens have renounced their citizenship in the first and second quarters than all of 2012 combined, and 2013 is already on track to becoming a record year for renunciations. A total of 1,130 names appeared on the latest list of renunciations from the Internal Revenue Service, according to Andrew Mitchel, a tax lawyer who tracks the data. That is far above the previous high of 679, set in the first quarter, and more than were reported in all of 2012. . . .

More evidence that taxes matter: Boxer takes Fight in Macau, U.S. Federal Income Tax Rate Proves Too High

Taxes forcing a fight to be outside the US.

Manny Pacquiao will look to break a two-fight losing streak when he returns to the ring on Nov. 24 (Nov. 23 in the U.S.) at The Venetian in Macau, China, to fight Brandon Rios in a 12-round welterweight bout, Pacquiao adviser Michael Koncz exclusively told Yahoo! Sports on Monday. . . . .

Here are some of the comments about their views on taxes.

Michael Koncz told Yahoo! Sports that the 39.6 percent tax rate Pacquiao would face if he were to fight again in the U.S. makes a fall bout in Las Vegas "a no go." . . . 

"Manny can go back to Las Vegas and make $25 million, but how much of it will he end up with – $15 million?" Arum said. "If he goes to Macau, perhaps his purse will only be $20 million, but he will get to keep it all, so he will be better off." . . .

Politico's take on Obama's charm offensive

Even reporters are concluding that there is no substance to the Obama charm offensive.  From Jim Vendehei and Mike Allen at Politico:

The truth is Obama has lost some leverage [after the sequester debate] — and needed a bunch of high-profile meetings with adversaries to swat away reports that he’s too stubborn and too political. But, in private, nothing has really changed. . . .  

Obama would have to persuade Republicans to vote for a tax increase for the second time in less than one year. Can you imagine Boehner and his troops heading into the 2014 midterm elections dominated by conservative activists having to explain, not one, but two increases? . . . .

Obama and Senate Democrats solution to Sequester?: Increase government spending by $62.4 billion, raise taxes by $55.1 billion, raise the deficit by $7.2 billion!

How can anyone take the Democrats seriously?  Their offer to replace the sequester cuts is to increase government spending and the deficit.  Obama supports the Democratic Senate alternative.

CBO estimates that S. 388 would increase direct spending by $62.4 billion and revenues by $55.1 billion over the 2013–2023 period. Thus, the cumulative deficit would increase by $7.2 billion from those changes.

Obama has been critical of what he claims is a "meat cleaver" approach to cutting the deficit.  But his solution is to increase the deficit.  His offer to Republicans who are trying to cut the deficit is to increase it.

UPDATE: IBD claims that Obama's own proposal is even worse, though as they point out the plan has been well hidden.

. . . Turns out, Obama did have one [though he] . . . hasn't exactly been promoting this so-called plan. . . .
There are no details, for example, about the $200 billion in cuts to defense and domestic discretionary programs, other than that Obama wants them split evenly.
And while he offers $400 billion in "health savings," 30% are lumped in a bucket labeled "other."
Worse, Obama's "balanced" plan actually counts hundreds of billions of new revenues from taxes, fees and rebates as "spending reductions." Examples:
• His plan to "strengthen" unemployment insurance is labeled as a cut, but it's really a $50 billion tax hike.
• The $35 billion from the federal worker retirement programs involves boosting worker contributions.
• Most of the $35 billion in Medicare savings comes from charging wealthy seniors more.
• The $140 billion in "reduced payments to drug companies" are in fact rebates Obama wants drugmakers to pay Uncle Sam for selling drugs to poor seniors.
• Then there's the $45 billion in spectrum fees and asset sales that Obama lists as spending reductions.
Viewed correctly, it turns out that more than $300 billion — about a third — of Obama's proposed "spending cuts" are actually revenue increases. . . .

Some notes on Obama's State of the Union Address

More "investments" (read "spending") and no concern about the deficit (except as an excuse to raise taxes).  The call for more government spending will be based on Keynesianism claims that it will stimulate the economy.  Taxes are being pushed out of "fairness."

The president is expected to revive his calls Tuesday for government "investments" in infrastructure and education -- meaning spending. He'll focus on economic growth, while acknowledging the need to close the deficit through a combination of budget cuts and tax increases.  

"The core emphasis that he has always placed in these big speeches remains the same, and it will remain the same -- the need to make the economy work for the middle class," White House Press Secretary Jay Carney said.  

He declined to get into specifics, but said the speech will focus on "proposals that are necessary to help the middle class grow and to help the economy grow."  

Carney pointedly countered House Democratic Leader Nancy Pelosi, who a day earlier dismissed the idea that Washington has a spending problem.  

"Of course the president believes that we have a spending problem," Carney said. Still, he said "we need more investments that help the key industries of the 21st Century ... take root here." . . .

From the Washington Post:

When President Obama delivers his State of the Union addressTuesday evening, here’s one thing you won’t hear: an ambitious new plan to rein in the national debt. 

In recent weeks, the White House has pressed the message that, if policymakers can agree on a strategy for replacing across-the-board spending cuts set to hit next month, Obama will pretty much have achieved what he has called “our ultimate goal” of halting the rapid rise in government borrowing. 

“Over the last few years, Democrats and Republicans have come together and cut our deficit [over the next decade] by more than $2.5 trillion through a balanced mix of spending cuts and higher tax rates for the wealthiest Americans,” Obama said during his weekend radio address. “That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties say we need to stabilize our debt.” . . . 

Meanwhile some "conservatives" such as William Kristol are fighting against the sequester, which seems the only way to cut government spending right now.

Sequester is only one step down a stairway at the bottom of which the stones will break beneath our feet. But it’s an important step. It’s too important a step for the Republican party to be complicit in. Its likely negative consequences are far more important than any possible benefit that could come from a small and probably temporary cut in domestic discretionary spending, or from the satisfaction of highlighting the hypocrisy of Barack Obama and the irresponsibility of Harry Reid. Barack Obama and Harry Reid may be willing to sacrifice the national interest for petty and temporary political victories. Republicans shouldn’t be willing to do so. A great political party, on matters of great moment, puts national defense, and the national interest, first. 

IRS needs more employees because tax code becoming "more complex and far reaching"

It is alway reassuring to see the IRS complaining that the tax codes are getting more difficult for them to deal with.  From Federal News Radio:

"In addition to facing budget cuts and the potential retirement of many experienced employees, the work performed by IRS employees continually requires greater expertise as tax laws become more complex and far reaching," [Treasury Inspector General for Tax Administration] said.

Millionaire athletes fleeing California's taxes

So Obama doesn't think that taxes effect behavior?  Well, here are some people who are voting with their feet.  The higher federal tax rate makes people even more sensitive to the changes in state taxes.  From Fox News:

The Golden State's new 13.3 percent income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move, and according to the accountants who advise millionaire athletes, he was just saying what a lot of jocks were already thinking. Federal taxes on the top income bracket just rose by roughly 5 percent, and, while there's nothing rich athletes can do about that, they are paying attention to which states dip into their game checks — and how much they take. 

“They’re going to have an exodus of people,” said John Karaffa, president of ProSport CPA, a Virginia-based firm that represents nearly 300 professional athletes, primarily in basketball and football. “I think they’ll see some [leave California] for sure. They were already a very high tax state and it’s getting to a point where folks have to make a business decision as well as a lifestyle decision.” . . . .

More evidence that taxes matter: financial firms fleeing NY for Florida

This fleeing from NYC will be even worse with Obama's tax increases.  If you increase the top Federal rate from, that means that the higher NY take a greater percentage of what is remaining.  From the NY Post:

An increasing number of financial firms, especially private equity and hedge funds, are fed up with New York’s sky-high city and state tax rates and are relocating to the business-friendly climate in Florida’s Palm Beach County. . . . 

“Florida is a state of choice,” said Thalius Hecksher, global development chief for Apex Fund Services, who moved many of his operations to Palm Beach. “It’s organically grown. There’s no need to drag people down here. It’s a zero-income-tax jurisdiction.” . . . . 

But there’s no state income tax in the Sunshine State. Compare that to New York, where the state and local governments took $14.71 of every $100 earned in 2010, according to state records. . . . 

“In our industry, the people we’re talking about are $1 million-a-year earners. So when you’re talking about tax rates, it’s more meaningful.” . . . .

More evidence that taxes matter: Obamacare forcing a lot of workers to work part time

Just remember that this is occurring around the country and it is lower wage people who are being hit the hardest.

Hundreds of Wendy’s workers are seeing their hours cut back because of President Barack Obama’s health care law. 

WOWT-TV reports that nearly 300 employees at 11 Wendy’s locations in the Omaha area will have their hours reduced to 28 hours a week because the franchise owner says he can’t afford to pay his employees health care. 

“It has a huge effect on me and pretty much everybody that I work with,” employee T.J. Growbeck told the station. “I’m hoping that I can get some sort of promotion because then I would get my hours, but everybody is shooting for that because of the hours being cut.” . . . .

Fiscal Cliff deal increases deficit, increases taxes for 77 percent of taxpayers, and gives out lots of tax breaks for Democratic supporters

From The Hill newspaper:

The Senate deal to avoid the "fiscal cliff" will add roughly $4 trillion to the deficit when compared to current law, according to new numbers from the Congressional Budget Office (CBO). 

The CBO determined Tuesday that the package, hammered out late Monday evening by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) would — over the next decade — come with a $3.9 trillion price tag. . . .

This will give Obama something to brag about.  From Bloomberg:

The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington. 

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday. . . .

Some of the politically favored wealthy got some benefits.

And it seems Hollywood's rigorous backing of President Barack Obama and his Democrat peers in the waning months of 2012 paid off. 

Section 317 of the freshly approved legislation includes an extension for "special expensing rules for certain film and television productions." Congress first enacted production tax incentives favorable to the domestic entertainment industry in 2004, and extended them in 2008, but the deal was meant to expire in 2011. . . .

Other winners include:

• $430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States.  Producers can expense up to $15 million of costs for their projects.

• $331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.

• $222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.

• $70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”

• $59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.

• $4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

More Democratic Senators come out against Obamacare's medical device tax

Former Senator Evan Bayh (D-IN) announced he had made a mistake in support Obamacare because of this tax.  Now others have joined the chorus.

. . . The previously obscure tax has, over the last several months, emerged as one of the most controversial in the health care overhaul and one of the few with bipartisan opposition. Starting Jan. 1, the Affordable Care Act imposes a 2.3 percent tax on medical devices with the goal of raising nearly $30 billion over the next decade.  

But a group of U.S. senators this week revived concerns that the tax could hurt one of the few U.S. industries "that enjoys a net trade surplus."  

"The medical technology industry directly employs over 400,000 people in the United States and is responsible for a total of 2 million high-skilled manufacturing jobs," Minnesota Democratic Sen. Amy Klobuchar and North Carolina Democratic Sen. Kay Hagan wrote in a letter with 16 other senators and senators-elect Monday to Senate Democratic Leader Harry Reid. "In an environment focused on increasing exports, promoting small businesses and growing high-tech manufacturing jobs for the future, we must do all we can to ensure that our country maintains its global leadership position in the medical technology industry and keeps good jobs here at home."  

The lawmakers urged Reid to support a delay in implementation, warning of the business consequences. . . . .

UPDATE: Even more names appear:

Amy Klobuchar (D-Minn.)

Kay Hagan (D-N.C.)

Al Franken (D-Minn.)

Herb Kohl (D-Wis.)

Barbara Mikulski (D-Md.)

John Kerry (D-Mass.)

Charles Schumer (D-N.Y.)

Kirsten Gillibrand (D-N.Y.)

Robert Casey (D-Pa.)

Ben Nelson (D-Neb.)

Debbie Stabenow (D-Mich.)

Jeanne Shaheen (D-N.H.)

Dick Durbin (D-Ill.)

Joseph Lieberman (I-Conn.)

Patty Murray (D-Wash.)

Elizabeth Warren (D-Mass.)

Richard Blumenthal (D-Conn.)

Joe Donnelly (D-Ind.)

Election results send small business owners into deep funk

From the Washington Post:

The National Federation of Independent Business said its index of small-business optimism dropped 5.6 points last month to 87.5. The index was compiled from a survey of 733 NFIB members taken throughout November. . . .NFIB Chief Economist William Dunkelberg said the biggest drag on the index was owners’ expectation that business conditions will be worse six months from now. The number of owners expecting better times ahead fell 37 points. Nearly half the owners surveyed are now pessimistic about the future. . . .Dunkelberg said the survey points to the election results as the biggest factor in owners’ darker mood.

Another Obama tax that people might not have known about

So you want to cover the insurance costs of people who don't have insurance?  The obvious solution is to tax insurance right?  Forcing more people off insurance will surely lower the cost of covering people who don't have insurance, right?

Your medical plan is facing an unexpected expense, so you probably are, too. It's a new, $63-per-head fee to cushion the cost of covering people with pre-existing conditions under President Obama's health care overhaul.  

The charge, buried in a recent regulation, works out to tens of millions of dollars for the largest companies, employers say. Most of that is likely to be passed on to workers.
Employee benefits lawyer Chantel Sheaks calls it a "sleeper issue" with significant financial consequences, particularly for large employers.  

"Especially at a time when we are facing economic uncertainty, (companies will) be hit with a multi-million dollar assessment without getting anything back for it," said Sheaks, a principal at Buck Consultants, a Xerox subsidiary.  

Based on figures provided in the regulation, employer and individual health plans covering an estimated 190 million Americans could owe the per-person fee. 

The Obama administration says it is a temporary assessment levied for three years starting in 2014, designed to raise $25 billion. It starts at $63 and then declines.  . . .

More evidence that taxes affect behavior

Higher taxes actually alter people's behavior?  Is that really possible?  Here is something to remember the next time the Congressional Budget Office or the White House assumes that tax increases won't alter people's behavior.  From Bloomberg News:

More than 150 companies, from Costco Wholesale Corp. to Las Vegas Sands Corp. (LVS), have declared special dividends totaling about $20 billion this quarter to avoid anticipated tax increases in 2013, according to data compiled by Bloomberg. Others, including law and private-equity firms, probably will pay bonuses, partnership distributions and commissions early for tax reasons, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. 

“We’re going to have a big jump in household income in the fourth quarter” said Crandall, whose company is a subsidiary of ICAP Plc, the world’s largest broker of transactions between banks. “It’s going to be in excess of $50 billion.” 

Much of that will go to upper-income Americans, the very people Obama has targeted to pay higher taxes, including Las Vegas Sands controlling shareholder and Chief Executive Officer Sheldon Adelson. 

Of the $123.6 billion in qualified dividends reported to the government for 2009, about 52 percent was received by those making more than $250,000 for the year, according to the latest data available from the Internal Revenue Service. . . . .

Now Intel is considering increasing its dividend payment.

Obama wants to go over "Fiscal Cliff"?

It sure looks like Obama wants to go over the fiscal cliff.  Apparently he just thinks that the Republicans will get blamed so he has no intent on really negotiating.  During the campaign he asked for $800 billion in tax increases.  Republicans offered him that and now he wants $1.6 trillion.  From The Hill newspaper:

Sen. John Thune (R-S.D.) said Friday that President Obama is "not very engaged" in discussions over the "fiscal cliff" because he is willing to let the tax increases and spending cuts take effect in January.   

"I don't think there's a lot of incentive on the president's part to be at the table to make a deal, which is why he's not very engaged in this discussion," Thune told Fox News. 

Obama has stressed repeatedly that he believes reaching a compromise budget deal is crucial, but Thune contended his actions have not matched his rhetoric. 

"You think about it, this president just won a big election, you think he would want to lead," Thune said. "He hasn't put anything forward." . . .

Boehner is also pessimistic about the negotiations.

Boehner said there was “no progress” in the talks just three weeks before tax hikes and spending cuts kick in and expressed frustration that President Obama hasn’t made a counteroffer to the GOP’s proposal of $800 billion in new tax revenue as part of a $2.2 trillion deficit reduction plan. 

“This isn’t a progress report, because there’s no progress to report,” Boehner said in a brief press conference at the Capitol. He said the White House had “wasted another week” by not responding to House Republicans. . . . . 

Gergen: Democrats trying to humiliate Republicans in tax deal

David Gergen: But since this election, there’s been — I think it’s the Democrats are the ones who are really trying to rub it in and almost humiliate the Republicans, and that’s not going to get to a bargain. Again, I think it has to be win-win. … You hear among some Democrats right now, and it’s disturbing, that maybe we ought to just take it over the cliff, that’ll, we’ll score political points against the Republicans, that will force their hands in the new year. That is a very, very, dangerous risk.

See also this statement from Krauthammer:

CHARLES KRAUTHAMMER:  The only reason the president insists on raising rates is because he knows it will destroy Republican unity. It will cause a complete fracture of the Republican majority in the House. It will hand him a Congress that he can then manipulate for the next two years at least because the Republicans will be neutered. 

With Obama pushing hard to increase taxes on corporate dividends companies are trying to quickly give out a lot of money in dividends

A long list of companies are trying to quickly give out dividend payments before the end of the year.  With the tax rate on dividends possibly going from 15 percent to as high as 40 percent, is it any surprise that companies are responding?  What do you think that this will do to the incentive for people to invest.

Companies are racing the clock to hand out billions in special dividends before year end—and some of them are taking on debt to do it. . . . .

UPDATE:  Here is an announcement from Apple.

If Apple took all the money earmarked to pay out dividends over the next three years and paid it out now, shareholders would get $31.88 per share. If taxed at the current 15% rate, that would leave investors with $27. If that same money is paid out after January 1, it would leave shareholders in the highest tax bracket with $18 after taxes. 

This has nothing to do with "fair" or the 1%. The money belongs to shareholders, and the option is either to take $27 in the next month or $18 spread out over the next 3 years. It's not a trick question; the only rational choice is to take the money now. 

A company and its board are obligated to attempt to efficiently invest shareholder money. If Apple does anything other than pay shareholders a minimum of $30 per share in a one-time dividend, they are ignoring their fiduciary responsibility for reasons they can't or won't explain. . . . 

Here's a quick primer for those of you new to the dividend conversation. The current tax rate on dividend income is 15%. Set in the Bush-era, this rate is set to expire in January unless lawmakers intervene. Under President Obama's proposed plan, dividends would be taxed inline with wages and salaries in 2013. That would mean dividend taxes will increase to as much as 39.6% for high-income earnings. With the kicker of a 3.8% additional tax on all investment income, the effective tax for dividends could be as high as 43.4% for anything paid out next year. . . .

So did tax rules the threat of the coming tax changes result in Star Wars 7 being made?

More evidence that taxes matter.  From Market Watch:

Disney will buy LucasFilm for $4.05 billion in cash and stock, the two companies announced Tuesday. By cashing out now, experts say the filmmaker spared his family the need to pick up the pieces of his empire after he’s gone. . . , 

That Lucas struck a deal in 2012 may be no accident either, advisers say. Long-term capital gains tax from the sale of assets held more than one year are taxed at a rate of 15% for investors in the 25% income tax bracket or above (Lucas’s level), and zero for investors in the 10% or 15% bracket. Those rates are set to jump to 20% and 10%, respectively in January. “He probably wanted to take advantage of the lower rate on long-term capital gain while it’s certain,” says Bill Smith, managing director at CBIZ MHM, a national accounting and professional services provider. . . .