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In the latest effort to avoid the automatic fiscal cliff tax hikes and spending cuts, Treasury Secretary Timothy Geithner meets today with Democratic and Republican congressional leaders on Capitol Hill.
GREENE: As the White House and Congress debate how to steer clear of the fiscal cliff, one obstacle is the president's insistence that the wealthy should pay more in taxes, though recently some Republicans have signaled some openness to raising revenues.
Over the next few days, NPR will look at various pieces of the tax puzzle that the two sides are now wrestling with. We start with Tamara Keith, who reports on the president's proposal to raise tax rates on capital gains and dividend income.
TAMARA KEITH, BYLINE: Right now, if you own a share of Microsoft stock, when the company pays out a dividend, the most you'd be taxed is 15 percent. And if you decide to sell the stock and cash out, you'd also pay 15 percent on your profits - the capital gains. The tax code has long favored investment income over, say, the money you get in your paycheck. But today's rates are especially low. The reason?
PRESIDENT GEORGE W. BUSH: I'm asking the United States Congress to abolish the double taxation of dividends.
KEITH: That was President George W Bush in a speech he delivered in January 2003, making the case to expand tax cutting policies he and Congress started two years earlier.
BUSH: We will increase the return on investing, which will draw more money into the markets to provide capital to build factories, to buy equipment, hire more people.
KEITH: Ultimately what Congress did was set the top tax rate for both capital gains and dividends at 15 percent. That's lower than they've been since the 1930s - a lot lower. President Obama wants to raise those rates, but only for the wealthy. Under his plan, for those earning more than $250,000 a year, capital gains would be taxed at 20 percent. And dividends would go back to being taxed as they have historically, as ordinary income, more than doubling the current rate.
BILL SMITH: As I told someone recently, it's a bad time to be rich.
KEITH: Bill Smith is with accounting firm CBIZ MHM.
SMITH: Of course it's never a bad time to be rich. But it's a worse time to be rich now because, you know, President Obama's clearly said he wants the wealthier Americans to shoulder a bigger burden of the tax liability.
KEITH: Raising rates on investment income, as the president has proposed, would bring in about $240 billion over a decade. If Congress and the president can't reach a deal and the Bush tax cuts expire for everyone, it would be even more. Smith says his firm is getting plenty of calls from clients wondering what this may all mean for them.
SMITH: You may not have Warren Buffet-type investments, but you still will feel the pinch.
KEITH: As a result, he says some companies are making sure to pay dividends before January 1, and many people are cashing out investments to realize the capital gains in 2012. He speculates the tax changes may have been on George Lucas's mind when he sold Lucasfilm to Disney earlier this year. Roberton Williams of the Tax Policy Center was wondering the same thing when the deal was announced.
ROBERTON WILLIAMS: He certainly will save if we have the president's plan go into place or go over the fiscal cliff.
KEITH: Like $400 million.
WILLIAMS: He'll save more in tax than we will make in our entire lifetimes.
KEITH: Fewer than 20 percent of taxpayers report income from dividends, and even fewer get money from long-term capital gains. There are certainly people who have the two shares of McDonald's their grandfather bought them or are supplementing their income with dividends from the power company where they worked. But Williams says that's not what you should picture when you think about who's benefitting from the low rates in the current tax code.
WILLIAMS: High income people are much more likely to have investments in the first place and more likely to have income from those investments. And their tax savings are greater than those for people in lower income categories because the difference between the capital gains rate and dividends rate and their ordinary tax rate is larger.
KEITH: He says more than half of today's tax benefit on investment income goes to people in the top one tenth of one percent.
Tamara Keith, NPR News.
MONTAGNE: And later today on ALL THINGS CONSIDERED, we'll hear about the political wrangling and possible economic consequences of such a tax change. Transcript provided by NPR, Copyright National Public Radio.