Democrats propose 5.6% surtax on millionaires
Senate democratic leaders yesterday proposed a new 5.6% tax on people that earn more than $1 million a year to fund the cost of President Obama’s $447 billion jobs bill. The millionaire tax would replace an earlier Obama tax proposal to offset the jobs bill cost, and drew fire from both Democrats and Republicans. The earlier tax package had also included limits on upper-income deductions for mortgage interest and charitable contributions.
“It is time for millionaires and billionaires to pay their fair share to help this country thrive, said Senate Majority Leader Harry Reid (D., Nev.).
But Senate Minority Leader Mitch McConnell (R., KY) saw an ulterior motive in the latest proposal.
“I understand our Democrat friends want to jettison entire parts of the bill altogether--not to make it more effective at growing jobs, not to grow bipartisan support,” McConnell said.
If passed, the new 5.6% tax would take effect January 1, 2013. Democrats say the tax would raise $450 billion in the next 10 years, enough to cover the administration’s proposed jobs bill. The earlier proposed plan called for a 5% tax that would have taken effect in 2012.
The $1 million threshold put forward by Democrats replaces earlier Obama proposals that sought to increase taxes on families and small businesses that earn over $250,000. For an individual with $1.1 million, the extra tax would amount to $5,600, or 5.6% of $100,000. The surtax would apply to wages and salaries, capital gains, interest, dividends and other types of income, according to Congressional aides.
The top marginal tax rate is currently 35%, and capital gains are subject to a 15% levy.
“We believe the million dollars is the right line,” said Senator Charles Schumer (D., New York), noting that there are people who make $250,000 or $300,000 “in many of our states who are not rich.” The higher threshold would also avoid imposing a tax increase on many small businesses.
Senator Orrin Hatch (R., Utah), a ranking member of the Senate Finance Committee, noted that a similar millionaire surcharge was floated in 2009, and voted down by Congress.
“Given the weak state of our economy, they’d be wise to reject it again,” Hatch said. “After all, whacking small business with this massive tax increase for another stimulus is bad for the economy and bad for job creation.”
Democrats Ben Nelson of Nebraska and Joe Manchin of West Virginia, both facing tough re-election fights next year, expressed reservations about the new plan. Senator Reid said he would allow floor amendments to unhappy colleagues.
The Congressional Joint Committee on Taxation estimates there are 330,000 households with incomes exceeding $1 million.
Democrats float tax on top earners (http://online.wsj.com/article/SB10001424052970203476804576612930412626412.html?mod=googlenews_wsj). WSJ, October 6, 2011
Dems propose 5% tax on millionaires (http://www.investmentnews.com/article/20111006/FREE/111009949). Investment News, October 6, 2011
Democrats seek tax on ‘richest,’ aiming gauntlet at G.O.P. (http://www.nytimes.com/2011/10/06/us/politics/democratic-leaders-propose-millionaires-tax-to-pay-for-jobs-plan.html). New York Times, October 5, 2011