Dear Mr. Berko: Back in July, you wrote that the country would fall off a financial cliff if the Bush tax cuts were not extended by Congress. You predicted that the market would crash, that consumer spending would fall and that many stocks would reduce dividends because their earnings could nose-dive. But you were not specific as to how this would affect taxpayers and wage earners like me. Do you blame the Federal Reserve or the Obama administration for this mess?
PL, Troy, Mich.
Dear PL: The tax cuts passed by Congress in 2001 and 2003 to goose a then sleepy economy expire Jan. 1, 2013. If they were not to be extended, it would force across-the-board cuts to most government programs and push the economy over a fiscal cliff. I blame the 535 privileged members of our do-nothing Congress, who have the fix-it power but refuse to use it. And thanks to these preening peacocks — who pirouette in $3,000 suits, wear gold Rolex watches and have hair slicked back like cake frosting — the U.S. economy could stumble into another serious recession. Every taxpayer would be affected, and consumer sentiment would grow blacker than the wing feathers on a rain crow. If I were a congressman, I'd be concerned about showing my face in public.
Congress has an approval rating lower than that of Mahmoud Ahmadinejad, and if I were a relative or spouse of a congressperson, I'd do my best to hide that fact or change my name. Here's how 2013 and beyond would be burry.
The lowest income tax rate at 10 percent would go to 15 percent, a 50 percent increase! The highest rate, at 35 percent, would increase to 39.6 percent.
Meanwhile, the 25 percent, the 28 percent and the 33 percent rates would rise to 28 percent, 33 percent and 36 percent, respectively. I am amused that the president of the American Federation of State, County and Municipal Employees is in a snit because the lowest tax rate increase, of 50 percent (from 10 to 15 percent), is disproportionately greater than the increases for other taxpayers. Meanwhile, capital gains rates rise from 15 to 20 percent.
One of the most damaging changes for many folks is that the tax rate on dividends, which is now 15 percent, would be the same as rates on ordinary income. Many investors would watch the taxes on their retirement income more than double, while others would see their dividend tax rate increase nearly 300 percent. The wealthy would pay a dividend tax rate of 43.4 percent. Gotta love that Congress!