Hint: It isn't you. The bulk of the burden of a new tax on net investment income falls squarely on the top 0.1 percent of Americans. But they also reap an exclusive tax benefit.
As I have covered in nauseating detail, the 2013 tax year adds a new wrinkle -- some taxpayers will pay an additional 3.8 percent surtax on the lesser of:
1. the taxpayer's "net investment income," or
2. the excess of the taxpayer's "modified adjusted gross income" (this will be equivalent to adjusted gross income in most cases), over $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for all other taxpayers.
In (very) general terms, "net investment income" includes income from interest, dividends, rents, royalties, passive activities and gain from the sale of most properties.
The new tax, which is imposed and governed by Section 1411, is expected to raise $123 billion between 2013 and 2019. But who's going to foot the bill?
The quick answer is obviously "the wealthy," as the tax generally only applies to taxpayers with adjusted gross income in excess of $200,000, which immediately limits its application to roughly 2 percent of the population.
And while yes, the "wealthy" will be on the hook, it is the uber-wealthy who will pay more than half of the $123 billion price tag.
According to this study performed by the venerable eggheads at the Tax Policy Center, while the wealthiest 1 percent will bear 88 percent of the total tax burden, the average increase in tax for the richest 1 percent will be only $23,000.
(Immediately ducks to avoid onslaught of pointy objects thrown by people dressed like the Monopoly guy.)
The richest 10 percent of the richest 1 percent -- or the richest 0.1 percent, if you're into decimals -- however, will pay a whopping 52.5 percent of the total cost of the new tax, with an estimated per-taxpayer annual addition of $131,000.
Before you decry the new tax as patently unfair due to its narrow focus, keep one thing in mind. There are still preferential tax rates afforded long-term capital gains and qualified dividends. These rates are currently at a maximum of 23.8 percent, which while less favorable than 2012's top rate of 15 percent, is still a far cry from the top ordinary rate of approximately 44.6 percent.
And according to a separate study performed by the TPC, this rate arbitrage will amount to a $542 billion dollar tax benefit over the period 2013-2017, an amount that is four times larger than the tax increase caused by the new net investment income tax.
And just like the net investment income tax, the beneficial rates applied to long-term capital gains and qualified dividends are not the concern of the unwashed masses; in fact, during 2011, the top 0.1 percent recognized 75 percent of all capital gains.
It would follow then, that the richest 1 percent receives nearly all the benefit of this $542 billion tax benefit. This math is supported by the TPC, which finds that taxpayers with income in excess of $500,000 enjoy 85 percent of the $542 billion tax benefit resulting from lower rates on certain investment income, while those earning less than $100,000 only receive 1.4 percent of the benefit.
So in summary, the wealthiest taxpayers in America will be footing over 88 percent of the $123 billion price tag of the new net investment income tax, but they also will be benefitting from 85 percent of the $542 billion tax savings resulting from the preferential rates afforded these types of income.
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