An occasional series, Fiscal Cliff Notes breaks down the looming "fiscal cliff" of expiring tax cuts and deep automatic spending cuts set to hit around the first of year.
About 80 percent of Americans would see their taxes go up if all the tax cuts signed into law by President George W. Bush were to expire as scheduled at the end of this year. And nearly 100 percent of the highest income earners would have to pay more — including both the Obamas and the Romneys.
"I should pay more taxes, and folks in my income bracket should pay more taxes," President Obama said at a January campaign event.
In 2011, Obama and the first lady had about $500,000 in taxable income, after deductions.
If the tax cuts expire, the Obamas will pay an estimated $15,000 to $20,000 more in federal taxes, says Bill Smith, managing director in the CBIZ MHM national tax office.
"Most of the Obamas' income was from wages or from book royalties," explains Smith, whose large accounting and tax firm works with high net-worth individuals.
If the cuts expire, tax rates on income at just about every level would rise. Smith says the top marginal tax rate would go up from 35 percent to 39.6 percent.
"And so you can see just the rate differential, the rate increase at the upper end accounts for a fairly high tax increase for the Obamas," he says.
But it's nothing compared to the tax increase the Romneys would face. "Now you're talking about real money," says Smith.
Not only do Mitt and Ann Romney have a lot more income than the Obamas — about $20 million in 2011, according to their estimated tax returns — but more than half of it comes in the form of dividends and capital gains, taxed at a lower rate.
In January, Romney said: "What's the effective rate I've been paying? It's probably closer to the 15 percent rate than anything. Because my last 10 years ... my income comes overwhelmingly from investments made in the past, rather than ordinary income."
Smith says much of that advantage would go away if the Bush-era tax cuts expire.
"Qualified dividends go from a 15 percent rate all the way to 39.6 percent," he says.
And long-term capital gains rates would rise by 5 percentage points.
In all, based on their 2011 income, the Romneys would see an increase of more than $1 million in federal taxes in 2013, Smith says.