Absent any action from Congress, federal tax rates will get a
substantial wallop Jan. 1, 2013. The top two individual income tax
rates would rise from their current levels of 33 and 35 percent to
36 and 39.6 percent. Rates for investment income would rise at the
same time. The 2 percent reduction in payroll taxes would end. And
the estate tax would revert to 55 percent (from 35 percent) while
the exemption level would revert to $1 million (from about $5
million). Happy New Year.
NRCA is part of the S Corp
Coalition, which recently commissioned a study to assess the effect
these tax increases would have on the business community and, in
particular, small businesses. The study, conducted by Ernst &
Young, concludes the cumulative effect of these tax changes would
be to raise the top rate on pass-through income (experienced by
Subchapter S corporations) from 35 percent to nearly 45 percent. As
a result, the marginal effective tax rate on a new business
investment would be more than 15 percent higher than it is now,
surely a discouragement from investing in new plants and
The study also concludes the effect of these tax increases would
result in a 1.3 percent reduction in output, 0.5 percent increase
in unemployment, decline in investment activity of 2.4 percent and
reduction in real after-tax wages of 1.8 percent.
It's hard to imagine Congress would allow all this to happen,
but this is, as we know, an election year. So we're hearing the
rhetoric heat up: The "rich" should pay their "fair share" despite
the fact the top 1 percent of income earners pays just under 40
percent of all federal income taxes. One senator suggested letting
the tax increases take effect because then the debate no longer
would be about tax increases...
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