CEOs Support Higher Taxes and Debt Solution

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Campaign to Fix the Debt

By Children’s Home Society of Florida Foundation

The nonpartisan Committee for a Responsible Federal Budget in cooperation with former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles has created a “Campaign to Fix the Debt.”

Bowles and Simpson were co-chairs of the National Commission on Fiscal Responsibility and Reform. They proposed a bipartisan budget solution at the request of President Barack Obama.

The CEOs Gather

On October 25, over 100 CEOs gathered at the New York Stock Exchange to support a comprehensive budget solution similar to that proposed by the Bowles-Simpson Commission. One of the commission members was Honeywell Chairman and CEO David Cote. He stated, “The U.S. has an opportunity to not only fix our debt issue and have an economic recovery, but we can also be a model for the world and how to deal with debt. What it really comes down to is if we still have the political will to be a great country.”

Cote continued to emphasize that it is important to develop a comprehensive solution. This solution will include “higher revenue, reduced entitlement spending, reduced discretionary spending, and investment in infrastructure and math and science.”

Congressional Leaders

Congressional leaders from both parties responded to this public proclamation by leaders of many of America’s largest corporations. The Senate Democratic leadership indicated that it believes part of the solution involves tax increases on individuals with higher incomes. House Republican leaders continue to oppose these tax increases.

Sen. Bernie Sanders (I-VT) observed that it is important for corporate leaders to pay their “fair share” of taxes. He commented, “Our Wall Street friends might also want to show some courage of their own by suggesting that the wealthiest people in this country, like them, start paying their fair share of taxes.” Sanders noted that many large corporations use various tax provisions to reduce their taxes. In his view, this tax reduction has been a factor in the major deficit problems.

Assessment

Maya MacGuineas, Chair of the Committee for a Responsible Federal Budget, supported this bipartisan effort by the 100 CEOs. She stated, “The collective voice of these business leaders has helped shine a light on the fact that the debt is already affecting Americans where they work and live. We have listened to the CEO Council and heard the consequences of inaction – businesses aren’t investing in an uncertain economy and are slowing job growth to protect their employees. With the CEOs’ backing and the support of the over 280,000 person Grassroots Network, we believe we can successfully push for a comprehensive debt reduction deal.”

Editor’s Note: It is unusual for a bipartisan group of business leaders to be so public in support of both a budget solution and higher taxes. This willingness to place both spending and tax increases on the table is significant.

Conclusion

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Is There a Six Month Deferral for the Fiscal Cliff?

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The Budget Control Act of 2011

By Children’s Home Society of Florida Foundation

Speaking in Chicago last week, Senate Whip Richard Durbin (D-IL) proposed a change in the plan to reduce spending starting January 1, 2013. Under the Budget Control Act of 2011, substantial spending cuts in both defense and Medicare providers will commence on that date. These cuts together with potential tax increases have been described as a “fiscal cliff” that could send the nation back into recession.

Spending Cuts

The spending cuts are required because the Joint Congressional Committee in 2011 was unable to agree on a budget and tax plan. The anticipated spending cuts are designed to reduce costs by $1.2 trillion over the next decade.

Sen. Durbin proposes delaying the spending cuts for a term of six months. The Budget Control Act would be modified to allow the Senate Finance Committee and the House Ways and Means Committee an opportunity to develop a new plan.

Under Durbin’s proposal, the two committees must submit bills by June of 2013. The plans must total $4 trillion in budget savings. There would be $1.33 trillion in increased taxes and $2.67 trillion in budget reductions.

Assessment

Following hearings by both committees, the bill would need to be submitted to a conference committee. After passage by both the House and the Senate, the $4 trillion plan could be signed by the President. If all of those steps were completed by June 30, 2013, the mandatory budget cuts would not take place. They would be replaced by the agreements for tax increases and budget cuts in the new law.

Editor’s Note: The mandatory budget reductions in defense and Medicare take effect in 2013 because the Joint Congressional Committee was unable to agree on the balance of tax increases and budget reductions. There will be an opportunity for enacting new tax and budget provisions in the November session following the elections. Because the time is quite short for writing major legislation, many Senators and Representatives would like to defer action to 2013. However, there is a general reluctance to agree on the level of tax increases and budget reductions necessary for a compromise bill.

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The Tax Foundation Reviews the Presidential Candidates’ Tax Proposals

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Goals for Sound Tax Policy

By Children’s Home Society of Florida Foundation

The nonpartisan Tax Foundation states that its goals for sound tax policy include, “simplicity, neutrality, transparency and stability.”

The Review

It published a review on September 6, 2012 of three different major tax proposals. The review discussed the tax proposals of the National Commission on Fiscal Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowles, the proposals of President Obama and the proposals of Presidential Candidate Mitt Romney. The nonpartisan Tax Commission attempted to provide an objective comparison of the three proposals. It discussed proposals for income tax, capital gains tax, corporate tax and gas tax for each plan.

The National Commission on Fiscal Responsibility and Reform produced a plan in December of 2010. With nine Democrats and nine Republicans on the committee, the plan received 11 of 18 votes. However, it did not receive a sufficiently large majority to be submitted for a vote by the House and Senate.

The plan is commonly described as the “Simpson-Bowles” plan after the Republican and Democratic Co-Chairs of the Commission.

The “Simpson-Bowles” Plan

Simpson-Bowles proposes a 28% top rate on personal income taxes. Capital gains and corporations would also be taxed at 28%. Corporations would not pay tax on earnings overseas. The alternative minimum tax would be repealed. Taxes on gasoline would be increased from 18 cents to 23 cents per gallon.

With the reduction in the top income tax rate, most credits and deductions would be greatly limited. There would be a child credit, an earned income tax credit, a limited deduction for mortgage interest and deductions for health and retirement plans.

The principal goal of Simpson-Bowles is to reduce spending to 21% of gross domestic product (GDP) and to raise taxes to that same level. Simpson-Bowles is projected to balance the budget by 2037.

The Tax Foundation

The Tax Foundation study of proposals by President Obama covered many of the same areas. The top income tax rate would be set at 39.6%. Long-term capital gains are taxed at 30% under the “Buffett Rule.” Dividends are potentially taxed at the top rate of 39.6% plus the 3.8% additional tax under the Affordable Care Act. Corporate taxes for both U.S. and foreign profits are 28%. The alternative minimum tax is retained with the “Buffett Rule” level of 30%.

President Obama proposes retaining most credits and deductions with some technical changes. The benefit of deductions for the upper income brackets of 39.6% and 36% would be limited to the tax savings in the 28% bracket.

Presidential Candidate Mitt Romney proposes a top income tax rate of 28%. Capital gains would continue to be taxed at 15% and dividends at 15%. Corporate tax rates would be reduced to 25%, and foreign income would not be taxed. There would be substantial limits on credits and deductions. There would be limited deductions for home mortgage, charitable gifts, retirement plans and health plans. The alternative minimum tax would be repealed. Candidate Romney’s plans are projected to balance the budget by 2020.

Editor’s Note: This nonpartisan review by Dr. McBride and the Tax Foundation is offered as an educational service to our readers. Your editor and this organization take no position on the specific provisions that are involved. Our readers should recognize that with the complexity of our tax system, the comparison by Dr. McBride involves review of extensive information and a number of judgments on the various proposals.

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Wind Energy Alternate Investments

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Calm or Gusty?

By Children’s Home Society of Florida Foundation

The Energy Department released the “2011 Wind Technologies Market Report” this week. It noted that there was substantial growth for wind energy, but significant uncertainty about its future.

Federal Aviation Administration

In a parallel development this week, the Federal Aviation Administration issued tentative approval of Cape Wind, a planned wind farm off the shore of Cape Cod and Nantucket Island. The 130 wind turbines of Cape Wind will stand 440 feet tall. The wind farm is opposed by the Alliance to Protect Nantucket Sound.

However, the FAA approved the wind farm and noted that the towers would be required to include appropriate lights and be painted in colors that made them more visible to aircrafts. With the FAA approval, the Cape Wind developers may now seek final financing and could receive a 25 year lease from the federal government.

2011 Growth

The energy report on wind technology showed significant growth in 2011. Approximately 6.8 GW (gigawatts) of new wind energy capacity were added in the United States.

Of all the new energy facilities created, wind represented 32% of the total in 2011. However, total wind capacity is now just 3.3% of America’s electricity demand. Cape Wind will be the first major offshore U.S. wind project.

China Rising

The world leader in wind energy is China. The U.S. is now in second place with about 20% of global wind capacity. The states with major commitments to wind energy are Texas, California, Iowa, Minnesota, North Dakota and South Dakota.

Assessment

The major concern affecting wind energy in 2013 is the potential loss of federal and state wind tax benefits.

In addition, wind faces substantial competition from natural gas. With the development of “fracking,” natural gas production has substantially increased. With a large new supply of natural gas, there are now sufficient reserves to support the U.S. needs for 100 years. This increased supply reduces the cost of natural gas and makes it more attractive than wind energy.

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The Supreme Court Permits Healthcare Taxation “Penalty”

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On the PP-ACA

By Children’s Home Society of Florida Foundation

In 2010 Congress passed the Patient Protection and Affordable Care Act (PPACA). A key part of the Act is an individual mandate for health insurance. All individuals must have health insurance by 2014 or pay a tax-penalty.

The Tax Penalty

The tax-penalty starts at the greater of $285 per family or 1% of income in 2014. However, by 2016, the tax-penalty increases to $2,085 per family or 2.5% of income, whichever is larger.

Commerce Clause

Many states sued the federal government and asked that the individual mandate be held invalid. While the various courts had different positions on the issue, some federal judges were concerned that requiring a person to purchase insurance could be a violation of the Commerce Clause of the U.S. Constitution.

CJSC John Roberts

Chief Justice of the Supreme Court John Roberts wrote the opinion for a 5-4 majority in the PPACA case. First, he determined whether or not the Court was prohibited from ruling on the case under the Anti-Injunction Act. He decided that the required payment would be a “penalty” for purposes of that Act and not a tax. Therefore, the Supreme Court could issue a ruling.

Second, Chief Justice Roberts reviewed the powers of government under the Commerce Clause. He agreed with the other four justices opposing PPACA that Congress had the right to regulate commerce, but does not have the right to regulate non-activity. Therefore, requiring individuals to purchase health insurance is not a permitted power under that provision. PPACA could not be approved under the Commerce Clause.

However, Roberts observed that it is permissible for the Court to consider the validity of PPACA under the power of the government to tax. He determined that the individual mandate to purchase insurance or pay a penalty-tax is permitted under that power. Roberts stated, “Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” He carefully approved the use of the power without discussing the appropriateness of PPACA provisions.

Roberts found several reasons for permitting the taxing power. The tax-penalty will be paid when filing IRS Form 1040. As is true with other tax provisions, lower-income individuals are excluded from this tax-penalty. The tax-penalty is part of the Internal Revenue Code and will be collected by the IRS.

Dissenters

The four dissenting Justices would have determined that PPACA fails to meet the requirements of the Commerce Clause and would have invalidated the entire bill.

Editor’s Note: The taxes to pay for PPACA include a new tax on medical devices that will increase costs to individuals and healthcare providers. There also is a new 3.8% Medicare tax. It applies in 2013 to income and capital gains. If the expected post-election tax bill extends the current 15% capital gain rate, then the capital gains tax rate will be 18.8% in 2013. However, if the 15% federal capital gains tax rate is increased to 20%, then the new rate in January of 2013 will be 23.8%. The increase in capital gains rate may influence charitable gifts of appreciated property in 2013.

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Are We Finally Lifting the Secret IRS Veil on Un-Paid Taxes?

The Tax Gap Increases to $450 Billion

By Children’s Home Society of Florida Foundation

By Dr. David Edward Marcinko MBA, CMP

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Each year the IRS conducts a survey to determine the amount of unpaid taxes. The “tax gap” is defined as the amount of taxes that are owed by taxpayers but not paid on time.

2006 Results

For the year 2006, revised figures released this week showed that the tax gap increased.  The previous estimate of the 2006 tax gap was $345 billion but it increased to $450 billion. The “net tax gap” is a smaller number that reflects the ability of the IRS to collect some of the unpaid taxes.  When the additional $65 billion in taxes collected later is subtracted from the $450 billion, the net tax gap is $385 billion.  The net tax gap number increased from $290 billion in 2001 to the larger number by 2006.

Tax Compliance Level

The compliance level for taxpayers remains 83.7%.  This indicates that the majority of Americans are continuing to calculate and pay their taxes correctly.

Sen. Max Baucus (D-MT) is Chairman of the Senate Finance Committee.  He responded to the IRS survey by noting,

“This report shows that closing the tax gap needs to be a major focus of tax reform.  An improved tax code that’s simple and fair to all Americans will help close the tax gap, boost our economy and create jobs.”

Editor’s Note: 

Both Sen. Baucus and House Ways and Means Committee Chair Dave Camp (R-MI) have been conducting hearings that will lead to major tax reform in 2013.  For the vast majority of Americans who pay their fair share of taxes, it is beneficial if Baucus and Camp are able to simplify the tax system and reduce the tax gap.  More effective collection of revenue decreases the need to raise taxes on those who are currently paying their fair share.

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Doctors May Save Some Money with These 2011 IRS Tax Changes

A Brief IRS Tax Code Update

By Children’s Home Society of Florida Foundation

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In an information letter, the IRS outlined seven specific changes in the 2011 law that will be useful to doctors and all taxpayers filing their tax returns this year. And, some of these 2011 tax law changes may reduce your taxes:

1. Energy Credits – The energy credit was reduced from the $1,500 limit for 2010 to a maximum of $500 for 2011. Up to 10% of qualified expenditures for high-efficiency heating and air conditioning systems, water heaters, biomass stoves, energy-efficient windows and doors and other energy improvements will qualify. The 2011 limit is $500. This credit is reduced by previously-taken energy credits and will generally be available for taxpayers who made their first energy improvements in 2011.

2. 2008 Homebuyer Credits – Some purchasers of new homes in 2008 qualified for a first-time homebuyer credit. The credit was essentially an interest-free loan to be paid back over 15 years. For these taxpayers, the second repayment of the credit amount will apply for 2011.

3. Capital Gains and Losses – Previously, capital gains and losses were recorded on Schedule D. There is a new Form 8949 to report gains and losses. Schedule D will still be used for a summary of capital gains and losses.

4. Roth Conversions – Those individuals who converted a traditional IRA to a Roth IRA in 2011 must report their taxable income. In previous years, only half of the income was reported each year for two years. However, for 2011 conversions the full amount is reportable.

5. Standard Mileage Rates – The standard mileage rates changed on July 1 for business use, medical travel, moving or charitable services. For the first half of 2011, the rates are business travel at 51 cents, medical and moving travel at 19 cents, and charitable travel at 14 cents per mile. For July 1 through the end of the year, business travel is 55.5 cents, medical and moving travel at 23.5 cents and charitable travel remains 14 cents per mile.

6. Alternative Minimum Tax Exemption – The AMT exemption for 2011 will be $74,450 for a married couple, $37,225 for married persons filing separately and $48,450 for single person or heads of household.

7. Health Insurance – Generally, self employed persons who operate a small business will qualify for deduction of health insurance premiums.

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On Social Security Adjustments for 2012

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Announcing a 3.6% COLA

By Children’s Home Society of Florida Foundation

On October 19th 2011, the Social Security Administration published a news release with increases in payments for 2012.

Based on the increase in costs this year and the economy, there will be a 3.6% cost-of-living adjustment (COLA) for 2012. This will result in increases both in contributions for some workers and in payments for retired persons.

Current Workers

Those current workers with higher incomes may be required to make larger payments. The Social Security wage limit for contributions (OASDI only) will increase from $106,800 to $110,100. The Medicare contribution of 1.45% will continue to apply to all earnings. Approximately 10 million workers are affected by this increased limit that changes their total contribution.

SS Old-Age, Survivors, and Disability Insurance

Social Security will continue to include the OASDI component of 6.2% and the Medicare portion of 1.45%, for a total of 7.65%. This contribution is required by both the employer and the employee. Self-employed persons will pay the total 15.3%.

Indexed Reduction

The potential reduction in payments for individuals between age 62 and their full retirement age is also indexed. The exempt portion increases from $14,160 to $14,640 per year. During the final year prior to the full retirement age, the limit in earnings prior to the full retirement date is increased from $37,680 to $38,880. Workers who exceed the applicable limit will lose $1 for every $2 in earnings above that amount.

Assessment

The maximum payment at full retirement age will increase from $2,366 per month to $2,513 per month. For all individuals receiving Social Security payments, the average payout is projected to increase from $1,186 to $1,229 per month.

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Attacking the Home Mortgage Tax Deduction?

On Tax Reform

By Children’s Home Society of Florida Foundation

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Senate Finance Committee Chairman Max Baucus (D-MT) has been holding a series of hearings on major tax reform. The hearings focus on potential changes in itemized deductions. If itemized deductions for medical care, mortgage interest, state and local taxes or charitable gifts are reduced, then it may be possible to lower the overall tax rates.

The “Big Four” Tax Decuctions

These four deductions are termed “tax expenditures” and are all currently under review. At the October 6th hearing of the Senate Finance Committee, witnesses discussed changes in home mortgage deductions.

Sen. Baucus stated, “As we work to improve and simplify the tax code, we need to make sure tax incentives are structured to encourage certainty and stability, not booms and busts in the housing market. And as we reduce the deficit, we need to insure every dollar in tax expenditures is spent wisely – and spent efficiently.”

Orrin Hatch Speaks

The senior Republican Senator on the committee is Orrin Hatch (R-UT). He expressed concern about changing the mortgage deduction and noted, “Given the still precarious status of the nation’s housing markets and past mistakes made by government to prop up these markets, it is fair to say that Congress needs to tread carefully when addressing policies that affect real estate.”

John Breaux Speaks

Former Sen. John Breaux was a Co-Chair of the President’s Advisory Panel on Federal Tax Reform in 2005. This panel started by reviewing the ability of taxpayers to deduct interest payments on up to “$1.1 million of housing debt on first and second homes.” They suggested that this benefit is primarily helpful to those with larger incomes who itemize deductions. The panel proposed that the mortgage deduction should be changed to a credit of 15% of mortgage payments on loans up to $412,000. In recognition of the major impact of this change on homeowners, Sen. Breaux recommended that the change would be phased in gradually over five years.

Home Builders Speak

Representatives of the home building industry also testified before the panel. Gregory Nelson, Vice President for homebuilder PulteGroup, Inc. stated, “Eliminating the mortgage interest deduction would quickly turn that fear into reality and send us into another negative feedback loop of falling house prices, hundreds of thousands of mortgages sinking under water and more house foreclosures hitting banks balance sheets and the resale market.”

Editor’s Note: Sen. Baucus will continue to hold hearings on major tax reform. Your editor and this organization take no specific position on any of the proposals. This information is offered as a service to our readers.

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On Rising Unemployment

Will Tax Reform Create Jobs?

By Children’s Home Society of Florida Foundation

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With a jobs report showing 54,000 new jobs last month, unemployment moved back up to 9.1%. Both parties are in agreement that the current economy is not producing a sufficient number of new jobs to reduce the unemployment rate.

House Ways and Means Committee

The House Ways and Means Committee continued to conduct hearings on tax reform that may increase employment. Chairman Dave Camp (R-MI) opened the June 2 meeting with a statement that it is time for “a systematic review of the tax code for a very simple reason – the tax code is preventing, not promoting, job creation.”

Chairman Camp notes that it is important to reform the tax code by lowering rates. He suggests that lowering marginal tax rates on business income will facilitate job creation.

Camp stated that the “combined federal-state corporate tax rate of 39.1%” is one of the highest in the world. In addition, there are over 200 federal tax provisions that are expected to expire in the next few years. Without a stable tax system and low rates, it is difficult for companies to grow and create new jobs. Chairman Camp has proposed a reduction in corporate and individual tax rates to 25%. The purpose of the hearings is to discuss how to reduce corporate and personal deductions so that overall tax rates can be lowered.

Ranking Minority Member Sander Levin (D-MI) commented, “I think most of us agree that a lower corporate rate is desirable. But the trade-offs involved in getting there truly matter.”

Assessment

At a subsequent meeting the next day with a group in Washington, Levin noted that it is one thing to propose a reduction in rates to 25%. However, reducing the personal rate would require a substantial change in the rules for mortgage interest and health insurance deductions. Similarly, reducing corporate rates would require a substantial change in the manufacturing deduction and the research credit.

While both individuals and corporations like the concept of lower rates, the changes in those deductions will affect many Americans. Rep. Levin suggests that it will be important to have an extensive discussion of those changes before there is legislation.

Editor’s Note: Tax reform for 2011 is still quite uncertain. However, as the unemployment numbers continue to hold near 9%, both parties are clearly concerned about the 14 million unemployed Americans. The high level of unemployment may be a motivator to consider substantial tax change this year.

Conclusion

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On Oil and Gas Tax Breaks

Reducing Tax Incentives?

By Children’s Home Society of Florida Foundation

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In his address to the nation last week, President Obama indicated that he favors a reduction in the tax incentives for oil and gas companies. He noted that gas in some communities is now over $4.00 a gallon and oil companies had $25 billion in profits during the early months of 2011.

While he does not have “a problem with any company or industry being rewarded for their success,” the President suggests that it would be appropriate to reduce tax incentives for the oil and gas industry.

The Response

House Ways and Means Committee Democrats responded with a letter to Chairman Dave Camp (R-MI). They noted that a specific Sec. 199 Domestic Manufacturing Deduction saved the oil companies approximately $1 billion last year in taxes. Democratic Members of the House Ways and Means Committee recommend that this benefit be eliminated for the oil companies.

Assessment

The energy industry responded to the proposals. American Petroleum Institute (API) President Jack Gerard suggested, “We need to stay focused on energy policy, not demonizing industries.” The energy industry notes that there are 9.2 million Americans who are engaged in the domestic oil and gas industry. Oil and gas represents 7.7% of GDP. If the incentives were reduced, there could be lower employment and higher costs due to greater imports of foreign oil.

Editor’s Note: Sen. Max Baucus has indicated that he will introduce legislation to reduce the oil and gas tax incentives within the next two weeks. He plans to spend the revenue gained through changes in oil and gas tax rules on new incentives for clean energy.

Conclusion

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On the US Tax Code Complexity

Recent Ways and Means Committee Meeting

By Children’s Home Society of Florida Foundation

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At an April 13th 2011 hearing on the tax code before the Ways and Means Committee, witnesses noted that there is a general consensus on the complexity of the tax code.

Enter Albert Einstein

One witness quoted Albert Einstein, recipient of 1921 Nobel Prize in Physics. While he was the world expert on the Theory of Relativity, Dr. Einstein also commented that “the hardest thing in the world is to understand the income tax.”

At the hearing, Chairman Dave Camp (R-MI) noted there are “nearly 4,500 changes in the last decade – 579 of them in 2010 alone – the code is too complex.” Other representatives and witnesses agreed that the sheer size and complexity of the Internal Revenue Code make compliance very challenging.

Enter the AICPA

Annette Nellen represented the American Institute of Certified Public Accountants in the hearing. She indicated that there are five specific steps that could be taken to substantially reduce the complexity and cost of complying with the code. These include the following actions.

1. Higher Education Deductions and Credits – Reduce the Hope Credit, American Opportunity Credit, Lifetime Learning Credit, the tuition and fees deduction and other benefits into one simple credit.

2. Education Phase Out – Create one definition for qualified education expenses and eliminate the multiple phase outs under the current system.

3. Kiddie Tax – For children with unearned income under age 18 or students under age 24, simplify the current method where they pay tax at their parents’ rate.

4. Mileage Rates – Create the same mileage rate for business purposes, medical purposes and qualified charitable travel.

5. Alternative Minimum Tax – Repeal the tax because it is too complicated to modify.

Enter the Financial Planner

Financial Planner Mark Johannessen is a CFP™ and Managing Director of a McLean, Virginia financial firm. He was President of the Financial Planning Association in 2008 and suggested that there are a number of Internal Revenue Code issues that make financial planning difficult.

First, there are temporary provisions. For example, the 2011 tax rate on dividends is 15%, but the scheduled tax rate on dividends in 2013 is 43.4%. While it’s possible that Congress could change the law between now and 2013, it makes investment planning very difficult.

Second, many changes are temporary and Congress tends to act very late in the year. Congress passed the IRA Charitable Rollover for 2010 on December 17. By that date, most individuals had already taken their required minimum distribution. Johannessen indicated that the late date “negatively impacted both the individuals’ planned charitable giving” and also the charities who received fewer gifts.

Third, the uncertainty in estate tax law continues to make planning quite difficult. While the current exemption is $5 million and there now is portability for couples, the current law only applies for 2011 and 2012. To do good planning, it is essential to know what the law will be in future years.

Assessment

http://www.amazon.com/Financial-Planning-Handbook-Physicians-Advisors/dp/0763745790/ref=sr_1_1?ie=UTF8&s=books&qid=1276795609&sr=1-1

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Budget Committee Proposes 25% Tax Rate

The Ryan Plan for FY 2012

By Children’s Home Society of Florida Foundation

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On April 5th House Budget Committee Chair Paul Ryan (R-WI) presented his budget proposal for Fiscal Year 2012. The comprehensive proposal included over $4 trillion in reduced spending during the next decade and a plan to reduce both the personal and corporate top tax rates to 25%.

House Ways and Means Committee

The tax reform provisions will be handled by the House Ways and Means Committee. Chairman Dave Camp (R-MI) noted that, “with nearly 4,500 changes in the last decade alone, the code is too complex. And with Americans spending over 6 billion hours and over $160 billion annually to comply with the code, it is too costly and too burdensome. Clearly, the time for comprehensive reform has come.”

Many Loopholes

Both parties have raised the possibility of tax reform this year. At a meeting in Pennsylvania, President Obama was asked about the potential for reforming corporate taxes. He noted that the U.S. has “one of the highest tax codes for corporations in the world.”

However, due to “many loopholes” a number of U.S. corporations pay little or no taxes. Moreover, President Obama suggests that it would be good “to reform our tax code, simplify it, lower the rate for corporations, but eliminate a bunch of the loopholes.”

Assessment

Treasury Secretary Timothy Geithner also indicated to the Senate Committee on Appropriations that he is developing a “comprehensive corporate tax reform plan” and it will be released quite soon. Sec. Geithner indicated his plan would include, “a very strong pro-investment, pro-growth, pro-competitiveness proposal.”

Conclusion

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US Budget Deficits Require Both Spending Cuts and Tax Increases

The CRFB Speaks

By Children’s Home Society of Florida Foundation

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The nonpartisan Committee for a Responsible Federal Budget (CRFB) has published a release on October 20 that discusses some of the options to tackle the federal deficit. According to a Bloomberg News poll, there are two major issues that are foremost in the minds of voters as they go to the polls on November 2nd. The first is jobs and the US economy. The second issue focuses on federal finances and the budget deficit.

CFRB Suggestions

The CFRB suggests that there are four potential options for reducing expenditures and one for increasing revenue.

1. Fraud, Waste and Abuse – A favorite comment of all political candidates is that he or she will reduce fraud, waste and abuse. While there may be some savings, this historically has been a fairly modest part of actual deficit reduction.

2. Strengthen Social Security – Congress will need to address methods for strengthening Social Security. The Social Security program used to run a substantial surplus each year. However, in 2010 the federal deficit will total approximately $40 billion. That is, the amounts received by Social Security will be $40 billion lower than the amounts distributed for benefits.

Social Security

By 2020, Social Security could be running a $100 billion deficit. Social Security Trustees have stated, “The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them.”

3. Healthcare – The Congressional Budget Office notes that the current healthcare programs could require nearly one-half of the federal budget by 2030 or 2040. Therefore, there will need to be further changes in healthcare in order to make the program fiscally sustainable.

4. Defense – Defense expenditures in 2010 were 4.7% of Gross Domestic Product (GDP). This amounted to $692 billion. Defense Secretary Gates has acknowledged that there may be opportunities to eliminate some weapons systems and reduce expenditures.

5. Increased Taxes – The CFRB release states, “It is very difficult to lay out a credible deficit plan that would not increase taxes. It is also very difficult to develop a comprehensive plan that would not raise taxes on families making less than $250,000 per year.” The potential for increased taxes has focused on income taxes, capital gains taxes, estate taxes and a consumption tax such as a gas tax or a value added tax.

Assessment

The Fiscal Commission appointed by President Obama is expected to issue a report in December that discusses these issues.

Editor’s Note: Your editor and this organization take no position with respect to the many financial and tax options that are available to Congress. This information is offered as a public service to our readers.

Conclusion

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On the US Budget Deficit in 2010

Now North of $1.3 Trillion Dollars

By Children’s Home Society of Florida Foundation

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The federal fiscal year for 2010 concluded on September 30th. The Office of Management and Budget and Department of Treasury have released the official figures for fiscal year 2010. The deficit was $1.294 trillion.

Geithner Speaks

Treasury Secretary Tim Geithner noted that the cost of the financial rescue of banks and automotive companies was lower than expected. He stated, “By carefully managing the emergency initiatives to stop the financial panic and by accelerating our exit from those investments, we have significantly lowered the cost to taxpayers, bringing the costs of the financial rescue down by more than $240 billion this year.”

TARP

The Troubled Asset Recovery Program (TARP) cost to Treasury was $9 billion in 2010. During this year, the Federal Government also spent $52.6 billion to support the housing industry through troubled lenders Freddie Mac and Fannie Mae.

Deficit Concerns

The deficit declined slightly from 10% in 2009 to 8.9% of the 2010 gross domestic product (GDP). Tax receipts for 2010 were $2.16 trillion or 14.9% of the economy. Government expenditures were $3.45 trillion or 23.8% of the economy. Senate Budget Committee Ranking Minority Member Judd Gregg (R-NH) expressed concern about this deficit and noted, “These abrupt and shocking changes in our fiscal situation cannot be dismissed as “inherited” problems when the tally of the majority’s spending spree has climbed into the trillions.”

Assessment

The Fiscal Commission appointed by President Barack Obama is developing a plan to reduce the deficit. The target for the Fiscal Commission is to reduce the current 8.9% GDP deficit down to 3% of GDP within five years.

Editor’s Note: Your editor and this organization take no position with respect to the many financial and tax options that are available to Congress. This information is offered as a public service to our readers.
Conclusion

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