Doubtful of the government's ability to come up with a plan to avoid the “fiscal cliff,” a combination of automatic spending cuts and tax increases that will go into effect next year unless a budget deal is reached, many high-income earners, the so-called “one percent,” are taking steps to sell their stocks, houses, and (to a lesser extent) businesses before the year’s end.
Why? Because the “fiscal cliff" will bring with it huge tax increases.
“Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes,” CNBC’s Robert Frank reports.
As mentioned earlier on TheBlaze, and as noted by Frank, going over the “fiscal cliff” would mean taxes on capital gains returning to a rate of 20 percent (up from its current rate of 15 percent), taxes on dividends going from 15 percent to over 43 percent, and the estate tax going from 35 percent on properties worth more than $5 million to 55 percent on properties worth more than $1 million.
It’s simple: Sell now and save a boatload of cash.
“Under almost any scenario, it makes sense to take the gains this year,” Gregory Curtis, chairman and managing director of Greycourt & Co., said, according to CNBC. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”
None of this should come as a surprise. Indeed, the natural response to heavy taxation has always been for the wealthy to move their money. In fact, in certain cases where the tax burden is considered too much, the wealthy have responded by simply moving.
In the U.S., for example, a record number of people have renounced their citizenship in favor of countries with lower tax burdens, TheBlaze reported earlier this year.
Meanwhile, on the other side of the Atlantic, the election of the socialist François Hollande has brought with it a 75 percent income tax rate on anyone earning more than $1 million and an exodus of the country’s wealthy.
In short, excessive taxation tends to result in a loss of wealth and/or the wealthy. But more than just cash being moved around, high tax rates actually work against generating revenues. Think about it: If you tax at a 100 percent rate, what's left to take?
Ecce! The Laffer Curve:
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Front page photos source courtesy the AP.