Taxing the Rich, Thenardier-Style

Taxing the Rich, Thenardier-Style

by Jeremy Scott

The popular musical Les Miserables is back. The film won three Oscars Sunday (including one for best supporting actress), and the show is now touring before it reopens in New York in 2014. But the influence of Les Miserables doesn't just extend to the silver screen and stage. President Obama seems to be taking tax policy advice from the musical's comical antagonist, Thenardier. Just like Thenardier hides the true cost of his services from customers by using surcharges and hidden fees, Obama would like to raise taxes on the rich by doing everything but attacking the problem head-on.

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Just like Thenardier's customers pay for using the mirror or keeping their window shut, upper-income taxpayers will now pay a 3.8 percent surtax on net investment income. Income tax rates on those making over $400,000 have risen to 39.6 percent. So-called "Pease" phaseouts (one of the most complicated provisions of the tax law) are also back. But that isn't enough complexity for Obama. He would like to impose a 28 percent cap on deductions and eliminate or reform many tax incentives to exclude the wealthy.

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Thenardier would be proud of their theory, but he might not approve of the results. Despite all the increased complexity being layered onto the tax code to trap the rich, it really isn't clear that they will be paying all that much more in taxes. And they probably won't until the capital gains preference is eliminated or sharply reduced.

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View Jeremy Scott's opinion in its entirety on the taxanalysts® Blog.

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