No matter who wins the election on Tuesday, taxes are likely to go up. Congress will have to find some solution to the budget deficit and they will likely look to taxes—especially on the wealthy—for some of that revenue.
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Tax breaks for capital gains, dividends, and other investment income will be the easiest targets. If the current tax laws are allowed to expire, capital gains taxes will rise from 15% to 20% and rates on dividends, wages, and salaries will go up to 39.6%.
The current administration advocates keeping current laws into effect for those with annual incomes less than $200,000 singly or $250,000 jointly but allowing them to expire for those making incomes above those thresholds.
The challenger says he would keep current laws intact for upper income households and eliminate taxes on investment income completely for those making less than $200,000 per year.
For the greater part of US history, taxes have been lower on investment income to encourage savings and investment. During the Reagan administration, income taxes were lowered from 50% at the top bracket to 28% and capital gains rates were increased from 20% to 28%.
But the budget deficit is much larger now than it was in the days of the Reagan administration.
The tax changes under Reagan were incorporated into the tax overhaul of 1986
. Many lawmakers of both parties agree that a large tax overhaul is needed.