Taxable Talk

President Obama released his jobs bill on Monday. You needn’t read it; it has no chance of passing the House.

Back in July, President Obama stated he’s all for compromising.

Either way, I’ve told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress -– and a compromise that I can sign. I’m confident we can reach this compromise. Despite our disagreements, Republican leaders and I have found common ground before.

Well, it’s election time so who needs compromise? Apparently, not President Obama:

Obama’s top political adviser David Axelrod said Tuesday that the administration was unwilling to break up the president’s $447 billion jobs plan if Republicans were only receptive to passing certain elements.

“We’re not in a negotiation to break up the package. It’s not an a la carte menu. It’s a strategy to get this country moving,” Axelrod said Tuesday on ABC’s “Good Morning America.”

Meanwhile, how is this package (which won’t pass) be paid for? Tax increases! From Roth Tax Updates,

The President has released the tax increases he wants to see as part of his “jobs” bill. They should be familiar, because he keeps proposing them:

– Taxing partnership carried interests as ordinary income

– Repeal bonus depreciation on private jets

– Take away some deductions from the oil industry — including some that are allowed to all taxpayers otherwise, like the Sec. 199 manufacturing deduction

– Cap the tax benefit of itemized deductions at 28%

In the end, this is all irrelevant. The package isn’t going to pass. The House will take what’s been proposed and will put a few things out, a la carte. The Senate will ignore it, and nothing will happen. And if the package should somehow survive the House (which it won’t), the tax increases won’t.

Warren Buffet penned an op-ed piece where he said the wealthy should pay more tax. The Tax Foundation, imho, opinion gets it right where Mr. Buffet gets it wrong.

Rather than repeat what the Tax Foundation wrote, I’d like to emphasize that if there comes a point where my earning more gross revenue will not cause me to make significantly more net revenue, I won’t earn more gross revenue. Back in the 1930s – 1950s, the top marginal tax rate was at least 70% (and that’s before state income tax). If I got to that level, I would turn away business: Why work for more revenue when I wouldn’t get to keep it?

And the final point that I’d like to emphasize is that nothing prevents Mr. Buffet (or anyone else) from sending more money to the federal government. You can send a check to the “Bureau of Public Debt” or pay online.

After huffing and puffing and bloviating some more, Congress passed the compromise measure extending the Bush Tax Cuts for two years. It will be signed by President Obama in the next few days. Here’s what’s in and out and what this means for you.

1. All of the current (2010) marginal tax rates will remain unchanged through 2012.
2. The Estate Tax will be at 35% for estates above $5 million for 2011 and 2012.  As of now, the Estate Tax will move back to 55% on estates above $1 million for 2013.  The estate tax adds portability of the $5 million estate tax exemption; as noted in Joe Kristan’s post, this will add work for tax professionals–many estates which otherwise would not need to file an Estate Tax return will have to.
3. The AMT patch has been added for both 2010 and 2011 (but not 2012).  The AMT exemption for 2010 will be $47,450 for individuals and $72,450 if married filing jointly.
4. The bill lowers the social security tax on employees by 2% (to 4.2% from 6.2%) for 2011 only.  The employer portion of this tax will remain at 6.2%.
5. Most of the tax breaks that needed to be extended were extended for2010 and 2011.  These include the R&D credit, the teachers’ tax deduction of $250, and credits on energy efficient appliances.  One tax break has vanished, though: You can no longer deduct property tax paid unless you itemize your deductions.
6. This makes 2010 tax planning like most years.  In my most recent newsletter I wrote, “…[T]his year is the first time in the last twelve years where I’m advising many clients to move income into the current year rather than deferring income into the following year.  That’s because income tax rates are definitely going up, and this year you likely want to consider paying more in tax.”  This is no longer true.  Thus, the normal rules apply: In general, you should accelerate deductions and defer income. If you think you will be hit with AMT this may not be the case, and you should contact our office to discuss your specific situation.

So Merry Christmas, taxpayers, and enjoy the gift that Congress has left in your stockings for the New Year.

I’m in Las Vegas (I have an audit here tomorrow morning), and it’s definitely a good locale given the fight over the Obama/GOP compromise on the Bush Tax Cuts. The 111th Congress has but a couple of weeks left, but one major issue still exists: Will the compromise pass as is, will it be modified in some manner, or will it fail and tax rates rise for everyone?

I haven’t a clue which whey this will end, and it’s very hard for me to give good tax advice when the tax rate could be x or y. Will certain items be extended or not?

Las Vegas is a perfect place to discuss this as it’s definitely the location for any discussion of betting odds. But I don’t know what those odds are, and I think it will be much wiser for me to just see the results in a week.

The same is true for poker aficionados who are waiting to see if Senator Harry Reid (D-NV) will insert into the compromise or some other piece of ‘must-pass’ legislation a measure that would clearly legalize and regulate online poker in the United States.

I’ll let you know when we have facts rather than speculation.