Posts Tagged ‘bush’

A few things you may have missed this weekend while Michael Phelps reminded the world that the path to Olympic gold is not paved with Subway foot-longs and bong rips.

The squabbling in Congress over future tax rates has left Christopher Bergin at Tax.com mad as hell, and he’s not going to take it anymore.

I’ll probably have a more detailed post on this soon, but the Tax Policy Center has published another outstanding analysis, this time assigning a price tag to the Democratic and Republican proposals for addressing the soon-to-expire Bush tax cuts that emerged from the Senate last week.

Senate bill 3412 (Democratic plan that allows Bush tax cuts to expire for those earning > $250,000, assumes a one year patch of AMT exemption, 45% estate tax, and $3.5M estate tax exemption): 

Total cost: $367,000,000,000

Senate Bill 3413 (Republican bill that extends the Bush tax cuts for all taxpayers, patches the AMT, and leaves estate tax at 35% and exemption at $5.1M):

Total cost: $405,000,000,000

Meanwhile, regardless of what happens to the Bush tax cuts, here’s one thing we can count on: With the employees’ share of payroll taxes slated to return to 6.2% in 2013, we’re ALL staring at an additional tax liability of up to $2,200 next year.

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They say a good negotiation is one that leaves both sides unhappy, so maybe we should take the news that two high-profile political figures are willing to step outside party lines as a good sign that we’re on our way towards bipartisan agreement regarding the soon-to-expire Bush tax cuts.

First, former President Bill Clinton — long portrayed as the embodiment of the “tax and spend” Democrat —  recently urged President Obama to extend the Bush tax cuts for all taxpayers, not just those earning less than $250,000 as has been proposed by the President.  In Clinton’s view, this would buy Congress time to focus their efforts on deficit reduction rather than haggling over tax issues.

From Bloomberg:

Clinton “does not believe the tax cuts for the wealthiest Americans should be extended again,” [Clinton’s spokesman Matt] McKenna said yesterday. The former president “simply said that he doubted that a long-term agreement on spending cuts and revenues would be reached until after the election.”

Clinton, who appeared with Obama at fundraising events in New York June 4, said in an interview broadcast yesterday on CNBC that Congress “will probably have to put everything off until early next year” because of Republican demands that the tax cuts for the wealthy be made permanent. Doing so would be “an error,” he said.

“What I think we need to do is to find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now and then deal with what’s necessary in the long- term debt reduction plan as soon as they can, which presumably will be after the election,” Clinton said.

Much has been made recently of this so-called “fiscal cliff,” and while details regarding the cliff are spotty at best, I was able to locate the following artist’s rendition of the future of America should the expected combination of tax increases and spending cuts be permitted to occur at year-end: 

In similarly disillusioning fashion, former Florida Governor and member of the “first family of Republicans” Jeb Bush said he would back tax increases if it meant cutting the deficit, an admission that ruffled feathers within the Republican party and likely left Rush Limbaugh reaching for the percosets.

Also from Bloomberg:

The brother of former President George W. Bush told a congressional panel in Washington today that he could back a theoretical deficit-reduction package that would include $1 in tax increases for every $10 in spending cuts.

 “If you could bring to me a majority of people to say that we’re going to have $10 in spending cuts for $1 of revenue enhancement — put me in, coach,” Bush told the House Budget Committee. “This will prove I’m not running for anything,” he said, prompting laughter from lawmakers and the audience.
All joking aside, it’s refreshing to see two political figures widely viewed as strict adherents to their respective  party policies recognize that compromise is going to be necessary if we intend to avoid becoming the largest province in the Chinese empire. Whether the President and Congress are taking notes remains to be seen.

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As you may have heard several thousand times over the past few years, President Obama would really like to see the Bush tax cuts expire at the end of the year for America’s wealthiest taxpayers, arbitrarily identified as those with taxable income in excess of $250,000. Should this occur, the top two tax rates for those above the threshold would return from the present-day 33 and 35% to 36 and 39.6%. The current rates for those earning less than $250,000 would remain at 10, 15, 25 and 28%.  

Two weeks ago, House Democratic Leader Nancy Pelosi made news by deviating from the President’s plan, arguing that the Bush tax cuts should be extended for all taxpayers earning less than $1,000,000, a threshold four times larger than Obama’s proposed cutoff.

One would have to think that Pelosi’s proposal is a bit of election-year gamesmanship. Democrats have long maintained that the reticence of their Republican counterparts to allow the Bush cuts to expire has far more to do with protecting the tax rates of the nation’s wealthy than it does a desire to reduce the deficit. By raising the cutoff for the expiration of the reduced rates from $250,000 to $1,000,000, Pelosi likely believes she can back Republicans into a corner: if they still refuse to embrace the cuts at the higher level, Pelosi and other Dems will paint their counterparts as aligning with the nation’s millionaires at the risk of punishing the middle class.  

To the surprise of no one, Pelosi’s plan was largely panned within her own party, with many Democrats claiming her plan would raise far less revenue than the Obama proposal, while also representing a windfall for many households earning $1 million, because they would get the benefit of reduced graduated rates on their income up to $1 million.

Today, the Joint Committee of Taxation got around to putting pencil to paper, and whether or not they validated the concerns of Pelosi’s party-mates depends on your materiality level and how you define “far less” when looking at the deficit. According to the report, which was released by the Center on Budget and Policy Priorities but credited to the Joint Committee, quadrupling the income threshold marking the expiration of the Bush tax cuts from $250,000 to $1,000,000 would raise only $463 billion over 10 years rather than $829 billion.

That sounds like a hefty difference, but then again, to put it in perspective, by merely extending the 2% payroll tax reduction through 2012, Congress was willing to tack $100 billion on to the deficit. So who knows: perhaps those in Congress would view sacrificing $360 million over 10 years in order to avoid the expiration of the Bush tax cuts for all taxpayers as money well spent.

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In a vote with the most predetermined outcome since the last Haitian presidential election, the House of Representatives is set to decide whether to extend the Bush tax cuts beyond 2012. The vote will take place prior to the November elections, and I poke fun because the Republican-dominated House will sure as sh*t opt to continue the cuts, which would prevent the top marginal individual tax rates from jumping from 35% to 39.6%.

Of course, there’s little chance that any significant tax reform will get pushed through prior to the presidential election; it has always been assumed that the best chance for change in 2012 would come in a lame-deck, post November session.

But by announcing the early vote — and by promising to couple any extension with a fast-track process to implement meaningful Code reform in 2013 — Republicans up for re-election in November stand to earn points with their constituents.

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Super Tuesday is upon us, and while today’s Republican primaries don’t present the same opportunity for glorious Patriots’ choke jobs or unintentional nipple slips as Super Sunday, it does play a slightly larger role in determining the fate of the free world. So there’s that.

Today’s elections will go a long way towards deciding who will square off against President Obama in November, but don’t be fooled into thinking the Democrats are kicking back and watching the battle unfold with popcorn in hand. Rather, Senate Democratic leaders have been preparing a proposal to end the Bush tax cuts for the nation’s wealthy that, contrary to conventional wisdom, could be voted on prior to the November elections.

As a reminder, the Bush tax cuts — which reduced individual tax rates while also cutting the long-term capital gain rate from 20% to 15% and the top tax on qualified dividends from 39.6% from 15% — are set to expire at the end of 2012. This isn’t unchartered territory; President Obama was faced with a similar situation in late 2010, when the tax cuts were originally slated to expire.

At that time, the president opposed an extension of the cuts, but only for those earning more than $250,000.[i]The lower rates would remain in effect for those below that threshold.  The Democratic party was not united on this front, however, as many officials were facing re-election, and were loathe to anger some of their more influential constituents by approving a tax increase on the wealthy.

The Democrats chose not to push the issue prior to the elections, and by the time the smoke had cleared in November, they had lost their House majority. A stalemate ensued, and rather than risk the Bush tax cuts expiring for all taxpayers, the president agreed to extend the cuts through 2012.

It has widely been accepted that any vote on the Bush tax cuts would have to wait until after the November election. That may not be the case, however. From Bloomberg:

Senate Democrats are considering a debate on ending the George W. Bush-era tax cuts for top earners before the November election because they think they’re in a stronger position than in 2010, Senator Charles Schumer said. That is one of the things we’re looking at very carefully,” Schumer told reporters Feb. 28. “I think that the public is on our side.”

Democrats believe allowing the cuts to expire for those earning more than $250,000 is a matter of fairness; Republicans, to the contrary, argue that raising the top rates would harm small business owners. Many businesses are operated as S corporations and partnerships, where the taxable income is not taxed at the entity level, but rather at the individual level at the owners’ tax rates. If the individual tax rate rises, so does the owner’s “business” tax obligation.

With Senate Democrats defending 23 seats this November, it may be in the best interest of those anticipating heated elections to pursue a vote on the cuts sooner rather than later:  

Democrats in competitive races, such as [Senator Claire] McCaskill, said they would welcome the chance to vote on extending tax cuts only for the middle class. “It’s a great idea,” she said in a March 1 interview. “It’s important that the people in my state know whose side I’m on.”

I’m still fairly certain that the fate of the Bush tax cuts won’t ultimately be determined until a lame duck session at the end of 2012, but this discussion gives me at least a glimmer of hope that we won’t be left with hanging without 2013 tax rates until the wee hours of New Years Eve.

[i] Essentially, for those taxpayers, the top individual rates would revert back to 36% and 39.6% from the current rates of 33% and 35%.

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