The House bill dubbed as “Plan B” promoted by House Speaker Boehner is supposed to cave on Obama’s campaign promise to raise taxes on the wealthy. Technically, it does raise the tax rate on people earning over $1 million from 35% to 39.6%.
Another provision of the law applies to long term dividends, which will be taxed at 20% versus the current 15%. This too, seems like an increase in taxes. It’s important because the top wage earners get most of their income from capital gains on investments, roughly 60% of which comes from dividends.
The only problem is that Obamacare has already raised the dividend rate on the wealthy to 45% for the top bracket. If Plan B becomes law it will reduce this tax rate from 45% to 20%.
Put all this together and the wealthy would actually pay more under current law with the Obamacare tax than they will with a 39.6% effective tax rate on income and 20% on dividend income.
Then there’s the small (very small) fact that people making over $1 million represent only 0.1% (that’s one tenth of one percent) of all taxpayers earning over $250,000. If raising taxes on the latter group would raise $85 billion a year, the net tax revenue from a group that is 1/1000 of that size will be far less, on the order of $10 billion.
