This document explores how these looming tax increases will directly affect seniors. Without Democrat action, in 2013, seniors will experience significant tax increases when:
- The 10 percent bracket will be eliminated, raising the lowest tax rate to 15 percent and costing 88 million taxpayers – including every senior who pays income taxes – an average of $502 in higher taxes in 2013 according to the non-partisan Joint Committee on Taxation (JCT).
- The tax rates on capital gains and dividends will rise significantly, imposing an average tax hit of $1,700 on 9 million seniors according to new JCT data.
- The death tax will be increased with rates as high as 55 percent.
Here are some further details about these looming tax hikes on America’s seniors.
|10 Percent Bracket Eliminated in 2013|
| For All Taxpayers, Including Seniors
|| The Lowest Tax Rate
in 2013 Without Democrats’ Tax Hike
| The Lowest Tax Rate
in 2013 With Democrats’ Tax Hike
| For single filers, the first $8,900 of taxable income
would be taxed at the lowest rate
|10 percent||15 percent|
| For married couples filing joint returns, the first $17,800 of taxable income would be taxed at the lowest tax rate
| Democrats’ 2013 Tax Increase from Eliminating the 10 Percent Bracket:
Up to $445 for Single Seniors
Earning As Little as $8,900 in Taxable Income and
Up to $890 for Married Seniors
Earning As Little as $17,800 in Taxable Income
Dollar amounts are based on JCT estimates reflecting expected inflation adjustments for 2013.
Impending tax increases on capital gains and dividends – detailed in the table below – will hit seniors particularly hard. Seniors will feel the impact not just in terms of the higher taxes paid on realized capital gains and dividends, but also in terms of depressed values of stocks – whether held directly, held through taxable mutual funds, or held through tax-advantaged IRAs and 401(k)s – upon which seniors rely to supplement their Social Security benefits. These higher taxes – and evaporated wealth1 – will cost many seniors the income they depend upon to pay for housing, food, medical care, and other monthly bills.
According to two 2010 Tax Foundation studies of IRS data taken from 2008 tax returns (which can be found here and here), Americans over the age of 65 earn the bulk of all dividend and capital gains income, considerably more than any other age group. Specifically, the Tax Foundation found that, in 2008, seniors:
- Earned more than $77 billion in dividend income, a figure representing 48 percent of total dividend income earned by all Americans that year; and
- Earned more than $150 billion in capital gains income, a figure representing 30 percent of total capital gains income earned by all Americans that year.
New estimates from JCT confirm just how hard the Democrats’ 2013 tax hikes on investment income will hit the retirement savings portfolios of America’s seniors. According to JCT, 9 million tax returns filed by seniors will face higher taxes on investment income as a result of Democrats’ 2013 tax hike. This represents half of all tax returns filed by seniors, each of whom will have to pay an average of $1,700 in higher taxes – a particularly onerous burden for seniors living on fixed incomes. According to JCT, those 9 million returns from seniors will represent more than one-third of the 26 million total returns facing higher investment taxes next year.
|Higher Taxes on Seniors’ Retirement Savings Portfolios|
|Seniors’ Retirement Savings Incentive||
|Top rate on long-term
|15 percent (18.8 percent when also accounting for the 3.8 percent ObamaCare surtax on net investment income)||20 percent (25 percent when also accounting for the 3.8 percent ObamaCare surtax on net investment income, and the additional hidden rate of approximately 1.2 percent from the reinstatement of the Pease limitation)|
|Rate on long-term capital gains otherwise taxed at 10 percent or 15 percent||0 percent||10 percent|
|Top rate on
|15 percent (18.8 percent when also accounting for the 3.8 percent ObamaCare surtax on net investment income)||39.6 percent (44.6 percent when also accounting for the 3.8 percent ObamaCare surtax on net investment income, and the additional hidden rate of approximately 1.2 percent from the reinstatement of the Pease limitation)|
|Rate on qualified dividends otherwise taxed at 10 percent or 15 percent||0 percent||15 percent|
|Seniors Directly Affected by Democrats’ 2013 Tax Increase on Capital Gains and Dividends: 9 Million|
For 2011 and 2012, the estate tax has featured an exemption amount of $5 million and $5.12 million, respectively (the exemption is indexed for inflation), with the assets of taxable estates subject to a top rate of 35 percent. Unless the Democrats who control Washington act, however, the reach of the estate tax will be dramatically expanded next year, with an exemption amount of only $1 million (not indexed for inflation) and a top rate of 55 percent. In many cases, the estate tax represents double or even triple taxation: the taxpayer paid tax when the income was earned, paid tax again on dividends or interest when that after-tax income was later invested, and then the estate must pay tax on the assets purchased with that previously-taxed income before those assets can be passed on to the taxpayer’s heirs.
Many seniors have spent their entire lives working, saving, and investing their assets to be able to pass along the fruits of their labor to their children and grandchildren. But if the Democrats’ 2013 tax hike is allowed to take effect, seniors who have accumulated assets of only a dollar more than $1 million – including seniors whose primary asset is a home that happens to have appreciated significantly in value over time – will once again find their estates subject to the death tax.
|Higher Death Taxes on Seniors’ Assets|
|Estate Tax Provision||
(indexed for inflation)
(not indexed for inflation)
|Top Rate||35 percent||55 percent|
| Democrats’ 2013 Death Tax Increase:
Estate Tax Will Again Take More than Half
of Some Seniors’ Taxable Assets
* JCT estimate reflecting the expected inflation adjustment for 2013.
To print a copy of this document clickhere. 1Dr. Allen Sinai and Dr. Margo Thorning, for instance, have estimated that, absent enactment of changes to current tax law scheduled to take effect in 2013, “the stock market very likely would sell off sharply, estimated at nearly 18% per year over 2013 to 2017,” meaning that even seniors whose investments are limited to tax-preferred accounts would feel the effects (see: http://www.forbes.com/sites/realspin/2012/06/28/the-horrific-accident-awaiting-us-over-the-fiscal-cliff/).