Tax Policies of the Major Presidential Candidates
October 30, 2012
by Michael W. Blitstein, CPA
On November 6, 2012, Americans will elect the occupant of the White House for the next four years. As President of the United States, the winner will play a major role shaping tax policy and possibly reforming the entire Tax Code. This briefing describes the tax policies of President Obama and former Governor Mitt Romney, with analysis of the potential impact of their tax positions both for the immediate future and for 2014 and beyond.
Impact
Under current law, the Bush-era tax cuts (reduced income tax rates, reduced capital gains/dividends tax rates, and much more) are scheduled to expire after December 31, 2012. Effective January 1, 2013, sequestration under the Budget Control Act of 2011 is scheduled to take effect, with the goal of reducing the Federal budget deficit by nearly $1 trillion over 10 years. In addition, after 2011, a host of so-called tax extenders expired, and after 2012, numerous additional temporary incentives are scheduled to sunset. Moreover, the 2012 payroll tax holiday, which reduced the employee-share of OASDI taxes by two percentage points, is also slated to expire after December 31, 2012. The combination of all these events has many commentators referring to 2013 as “taxmageddon” or the “fiscal cliff.”
The balance between Democrats and Republicans in the House and the Senate may also change on election day. However, whether either party acquires sufficient political capital, let alone a mandate, on taxes to address short-term issues such as sunsetting provisions and long-term issues like tax reform, remains to be seen.
Caution
Between the date of publication and election day, the positions of the candidates may change. CJBS has based this briefing on what we consider accurate, nonpartisan and unbiased information at the time of publication.
| SELECTED POSITIONS | |||
| Obama —Individual taxes | Romney – Individual taxes | ||
| 2013 rates higher for higher-income taxpayers only | 2013 rates same as 2012 for all taxpayers | ||
| Unspecified future date: lower rates for middle/lower income brackets | Unspecified future date: 20% income tax rate reduction for all taxpayers | ||
| Higher capital gains/dividend rate for higher-income taxpayers | Eliminate tax on investment income for AGI below $200,000 | ||
| $3.5 million estate tax exemption/45% rate | Abolish the estate tax | ||
| Replace AMT with “Buffett rule” | Repeal the AMT | ||
| Obama – Corporate Taxes | Romney—Corporate Taxes | ||
| Reduce maximum corporate tax rate to 28% (25% for manufacturing) | Reduce maximum corporate rate to 25% | ||
| Maintain worldwide system but with reforms | Implement territorial system of international tax | ||
| SELECTED CHANGES IN FEDERAL TAXES: 2012-2013 IF CONGRESS FAILS TO ACT | |||
| 2012 | 2013 | ||
| Top individual tax rate | 35% | 39.6% | |
| Capital Gains | 15%* | 20% | |
| Dividends | 15%* | Taxed at ordinary income rates | |
| Top estate tax rate | 35% | 55% | |
| Child tax credit | $1,000 | $500 | |
| AOTC | Up to $2,500 | Unavailable | |
| Code Sec. 179 dollar limit | $139,000** | $25,000 | |
| WOTC for veterans | Up to $9,600 | Unavailable | |
| Research tax credit | Unavailable | Unavailable | |
| Wind energy PTC | Available | Unavailable | |
| *Zero percent for taxpayers in the 10 and 15 percent brackets | |||
| **As adjusted for inflation | |||
Individuals: 2014 and Beyond
The basic goal for tax reform on the individual tax level expressed by both candidates is to broaden the tax base and lower tax rates. The candidates agree that tax reform should be revenue neutral. Each candidate also forecasts an improved economy from the savings of a simplified tax system and lower overall rates.
Businesses: 2014 and Beyond
Corporate tax reform, and business tax reform in general, has been raised by several Congressional committees and both candidates over the past year as a necessary long range step in making businesses more innovative and competitive. Based upon the multilayered considerations involved, however, concrete changes are not anticipated until 2014 or later. Specific issues include:
- Corporate Tax Rates
- International Proposals
- Other Business Reforms
Note: A more comprehensive PDF version of this brief can be seen on the CJBS website at: http://www.cjbs.com/Email/October2012/CJBS_long.pdf
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.
Illinois Small Business Jobs Creation Tax Credit Program
July 18, 2012
by Michael W. Blitstein, CPA
To help move the Illinois economy to a sustainable recovery, the Small Business Jobs Creation Tax Credit has been extended by Governor Quinn and the General Assembly with some new components.
Effective July 1, 2012, new, full-time jobs created beginning July 1, 2012 to June 30, 2016 will be eligible for tax credits. The program will either run until June 30, 2016 or it will immediately come to a close if $50 million in tax credits are issued prior to that 2016 date.
Overall, not a lot has changed from the pilot program to this extended program. Eligible businesses (and not-for-profit businesses) are still those with 50 or fewer full-time employees. Eligible jobs are those that pay at least $10/hour or $18,200/annually and the position must be sustained for one full year from the hire date.
One important thing to note: You do not have to keep the same individual in the position the entire year, but you will need to make sure the position is filled with any number of employees for at least one year from the actual hire date.
A new piece to this program is that PEO’s (Professional Employer Organizations) would be able to receive a tax credit based on their working relationship with an eligible business. If a PEO has been contracted by an eligible business to issue W-2s and make payment of withholding taxes, then they could enter their information and be eligible to receive a tax credit.
After creating one (or more) new, full-time positions that meet the eligibility requirements, employers are eligible to receive a $2,500 per job tax credit. Theoretically, this will provide an extra boost for employers, enabling them to grow their businesses in Illinois.
To register a position or to learn more about the program please visit http://www.jobstaxcredit.illinois.gov.
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.
by Michael W. Blitstein, CPA
Democrats and Republicans have begun a two week recess with lawmakers returning home to promote very different visions of tax reform. Before recessing, the House passed a Republican budget blueprint calling for individual and business rate cuts, the Ways and Means Committee approved a GOP small business tax package, and the Senate prepared to debate the so-called “Buffett Rule.” Congress also approved a short-term extension of Federal transportation excise taxes and funding.
The small employer incentive in the Senate bill appears to be a good and targeted expansion of the employer credit in the HIRE Act, Adam Lambert, CPA, managing director, Employment Tax Services, Grant Thornton, LLP, New York, told CCH: “The proposed credit has less limitations and hurdles for small businesses to jump.”
GOP budget
The House voted to approve the GOP budget blueprint on March 29th. The GOP budget proposes to cut the corporate tax rate to 25 percent, reduce the individual tax rates to 10 and 25 percent and eliminate unspecified tax preferences.
Senator Rob Portman, R-Ohio, recently said that he is developing a bipartisan legislative proposal to overhaul corporate taxation and reduce the U.S. corporate tax rate to 25 percent. Portman said his proposal would be revenue-neutral by reducing tax preferences.
Buffett Rule
Democratic leaders have indicated that the Senate will vote on the Buffett Rule after the two week recess. The vote is expected to be on April 16th on the Paying a Fair Share Act, which would subject taxpayers earning over $2 million to a 30 percent minimum federal tax rate. The tax would be phased-in for taxpayers with incomes between $1 million and $2 million.
Small Businesses
On March 28th, the Ways and Means Committee approved the Small Business Tax Cut Act along party lines. The GOP bill would allow a deduction for 20 percent of qualified domestic business income of the taxpayer for the tax year, or taxable income for the tax year, whichever is less. However, a taxpayer’s deduction for any tax year could not exceed 50 percent of certain W-2 wages of the qualified small business.
In the Senate, the Democratic bill would provide a 10 percent income tax credit on new payroll (through either hiring or increased wages) added in 2012. The maximum increase in eligible wages would be capped at $5 million per employer and the amount of the credit would be capped at $500,000. The bill would also extend 100 percent bonus depreciation through the end of 2012.
Transportation
Before recessing, the House and Senate approved an extension of Federal transportation excise taxes and funding, which President Obama signed on March 30th. The extension was necessary because Congress failed to pass a comprehensive transportation bill before the expiration of transportation tax authority and funding.
The Senate-passed transportation bill has become bogged down in the House. Some House members are opposed to its non-transportation tax provisions
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.
