Budget

Taxes on Rich to Increase by $1 Trillion

Taxes on top earners will increase by nearly $1 trillion over the next 10 years, thanks to the Bush tax cuts expiring this year, steeper taxes on capital gains, and limits on deductions. The top two income tax rates—affecting those that take in more than $200,000 or $250,000 for married couples—will jump from the current rates of 33 percent and 35 percent to 36 percent and 39.6 percent respectively. For people at those income levels, capital gains and dividends would be taxed at 20 percent, instead of the current 15 percent. And a taxpayer's ability to claim itemized deductions and personal exemptions will be limited, thanks to an expiring law. The Obama administration has proposed going a step further—the highest-income earners can currently reduce their taxes by up to 39.6 percent of those deductions, but that number could drop to 28 percent under the new proposal. Fund managers would see their income taxed at ordinary income rates, instead of capital gains rates. And the estate tax would return after a one-year repeal. Furthermore, using family trusts to limit estate-tax liabilities would be limited, which the Obama proposal says would earn an extra $23.7 billion over 10 years for federal coffers.