RUSH: Washington, Reuters: "The Internal Revenue Service has released new rules for investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law." Here you go. This is all known. It was not articulated in detail as part of the presidential campaign, but it was known. And by the way, I have to tell you, I'm somewhat confused, because the story says that all of these new rules go into effect on January 1st, 2013. Well, this is 2012. So in less than a month these new rules go into effect. However, the rules will not be final until after the IRS completes public hearings and comment in April.
Now, I'm a little confused, because the story makes it plain that these new tax rates will be applicable starting January 1, but they won't be final until the review and public comment process that the IRS holds, which they're required to, and it won't matter. You could go in, a hundred thousand people could go in and oppose this, and it won't change it. It's gonna happen. It's the law. The public comment time is just a chance for people to come in, blow off steam. So you're gonna have new tax rates that will not be official until April, but they are going to be applied, as I read the story. It's really confusing.
Here you go: "The 3.8 percent surtax on investment income, meant to help pay for healthcare, goes into effect in 2013. It is the first surtax to be applied to capital gains and dividend income," ever. This is on top of whatever the capital gains tax rate is. Right now it's 15%, speculated to go to 20, 25. It's gonna end up, for people over $200,000 a year, at 40%. By the time it all is said and done, investment income is gonna be taxed at around 40%. But it's gonna start with this 3.8% surtax.
"The tax affects only individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI. The tax applies to a broad range of investment securities ranging from stocks and bonds to commodity securities and specialized derivatives." This 159 pages of rules spell out when the tax applies to trusts and annuities as well as to individual security traders.
They released all this late on Friday. "The new regulations include" are you ready for this? "a 0.9% health care tax on wages for high-income individuals." So before we even get to a new deal on what Obama wants tax-wise, before we get to anything agreed to or not agreed to -- before we go over the fiscal cliff -- there's a 3.8% surtax on top of the 15% current capital gains which goes to 20%. And, let's round this up. It's a 1% health care tax on wages.
So whatever your tax bracket is, add a percentage point for wages for high income individuals. And again, that's $200,000 or $250,000. So the 35.9% bracket becomes 36.9%, without anybody doing anything. These are just the health care regulations. "Both sets of rules," the health care tax on wages and the new surtax on investment, "will be published on Wednesday in the Federal Register. The proposed rules are effective starting January 1.
"Before making the rules final, the IRS will take public comments and hold hearings in April. Together, the two taxes are estimated to raise $317.7 billion over 10 years..." They won't. When you raise taxes on activity, you lessen the activity. It will not raise the amount of money that they think it's gonna raise. It never, ever does.
So the IRS offers an illustration here so that you can understand what you're facing. "[A] taxpayer filing as a single individual who makes $180,000 in wage income plus $90,000 from investment income. The individual's modified adjusted gross income is $270,000." You thought you were taxing millionaires and billionaires, but you're not. You notice how now it's down to $200,000, not $250,000?
The $250,000 is for people that file single. But for married couples, it's $200,000
Now, of that $270,000 modified adjusted gross income arrived at with $180,000 in wages, $90,000 investment income, "the 3.8% tax applies to the $70,000, and the individual would pay $2,660 in surtaxes, the IRS said." So if you're in the $180,000 wage income group and you have $90,000 in investment income, your taxes are automatically going up about $2600 before any of the other tax hikes. I mean, this is just Obamacare.
This is before Obama gets his $1.6 trillion in new taxes, of which Boehner has now offered $800 billion.
Boehner has offered, as a starting point, $800 billion in exchange for entitlement cuts and all that. Now, we mentioned this tax back on February 22nd on this program. We said, "Obama's Corporate Tax Cut is a Tax Increase." It was presented as part of the Obamacare debate as a "corporate tax cut," but it's not. By the way, how many small businesses do you know that are in this window of example that the IRS provided?
How many have $180,000 in income of the business and $90,000 from investment income, for a modified adjusted gross income of $270,000? Hello, $2600 in new taxes! How in the world do you think people like that are gonna be hiring anybody or creating any new jobs? Again, this, folks, is just two new rules. As you know, Obamacare contains over 2,000 pages, and many of those pages have new rules. This is just the beginning. This is the small stuff.
RUSH: Okay, so I checked the e-mail during the break. "What do you mean, 40%? See, there you go! You just grab a number out of the sky and say it."
No, my friends.
Let's go back, again, to this program on February 22nd of this year, and the story we did, "Obama's Corporate Tax Cut is a Corporate Tax Increase." You can look it up at RushLimbaugh.com, particularly if you're a member. You can search the archives. And I think we were just about the only ones talking about this. What I said back then was, "One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.
"Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year." It's the Clinton rate that they hope is gonna kick in (and it will) in a few weeks when the Bush tax rates expire. That's what Obama wanted the dividend tax rate to be on investment dividends when you get a dividend paid on your stock holdings.
"Add in the planned phase-out of deductions and exemptions, and the [39.6%] rate hits 41%" on dividend tax rate. It's a tax on dividend income. "Then add the 3.8% investment tax surcharge in Obamacare" that I just mentioned to you. This is what Obama wants. This is what we're talking about as being part of the fiscal cliff. So he wants to triple the tax rate on dividend income. Not everybody has that, admittedly.
Like if you have Apple stock, for example, they've just started paying a dividend for the first time ever. Some of the dividends they're paying are pretty high because the stock has vaulted so high, so fast. So you've got the dividend income going to the new tax rate of 39.6%. Then you add the 3.8% investment surtax to pay for Obamacare, and then you take away the deductions that are part of the plan, "and the new dividend tax rate in 2013 would be 44.8% -- nearly three times today's 15% rate."
That's practically word-for-word what I said on this program back on February 22nd. This is not capital gains. I want to specify: Dividend income. It would be subject to capital gains, but this that we're talking about would not be applicable to all capital gains. This is dividend income, and it might cover a lot of it. It is significant.
Now, to put this investment tax (this surtax) into perspective:
If you sell your $400,000 house, you're gonna have to pay $15,200 in new taxes because of Obamacare.
The Obamacare surtax is 3.8% on capital gains.
RUSH: This 3.8% investment tax, this surtax on capital gains, that is why so many companies are being sold right now before this tax kicks in. This is why people who received dividend income are asking for it to be paid this year, before this stuff kicks in. People that have the ability to move income to this year are taking it. That's why you're seeing people sell stock. All these executives selling stock in their own companies to the tune of $20 million here, 35 million there, eight million over there, I've seen all of those. It's to take the money now before the new tax rates kick in.
Now, the example I gave on your house. I made one mistake, but not in the amount that you owe. I give you an example. You sell your house for $400,000. Two hundred thousand of that is subject to the new 3.8% surtax on capital gains. So whatever your capital gain is, you're gonna have a 3.8 surtax added to the 20% that it's gonna become. So you're looking at basically 24% capital gains rate. So if you sell your house and if your house has appreciated and you're moving into a bigger house, the government's gonna tax you 9% more than you're paying now on whatever the gain is in the house that you sell. This is just one rule of the two rules that are going into effect on January 1 for health care, the Obamacare taxes, the investment taxes, and then the Obamacare tax is basically a 1% addition to the income tax rate.