Going into the 2008 Presidential election year, Congress has a number of important issues to face, among them addressing the Alternative Minimum Tax (AMT) and the estate tax, and 401(k) fee disclosure. The way it's shaping up now, Washington insiders say actions will be taken in all three areas.
Thirty million Americans would be saved from the Alternative Minimum Tax (AMT) under a bill that was introduced by House Republicans October 11. The bill, The Taxpayer Choice Act, would repeal the AMT and give taxpayers a choice of how they wish to pay federal income taxes: under the current tax code or through a "simplified tax." The sponsors of the bill are Representatives John Campbell (R-California), Jeb Hensarling (R-Texas), and Paul Ryan (R-Wisconsin).
The simplified tax would use two income tax rates: a 10% rate on taxable income of $100,000 for joint filers and $50,000 for single filers, and a 25% rate for income above $100,000, says Tim Flynn, a House Budget Committee staffer. The current tax code uses six tax rates, so two rates is an attempt to "clean up" the tax system and make it easier--and less costly--for individuals to prepare their taxes, Flynn says.
Speaking of taxes, regardless of who wins the White House in 2008, taxpayers can expect a major tax bill to be introduced in 2009, says Randy Hardock, an attorney with Davis & Harman in Washington. "Every President does a major tax bill in their first session," he said at T. Rowe Price's Investment Symposium in Baltimore on October 9. "The 2009 tax bill will include major reshuffling in the tax burden and major tax increases." Greg Valliere, chief strategist at The Stanford Washington Research Group in Washington, agreed at the T. Rowe event that there would be a huge tax bill introduced in '09 and predicted that an estate tax remedy would be included in that bill.
Jeffrey Lowin, a partner with Morrison Cohen in New York, agrees that whether to repeal the estate tax is something that Congress must address in 2008 or 2009, but the decision isn't going to come "until there is wide bipartisan support." One possible solution that could garner such support is to "raise the exemption and take more people out of the estate tax," Lowin says. "Some people will continue to advocate full repeal of the estate tax. Others want the estate tax to continue," he says. "Therefore, you would guess that there will be an increase in the exemption (currently, $2 million) or a reduction in the rate of tax (currently, 45%) or maybe both." If the exemption were bumped to $4 to $5 million, Lowin says, that would raise it to where it should have been originally.
The Department of Labor (DOL) continues to craft its rules regarding 401(k) fee disclosure, while Rep. George Miller (D-California) attempts to tackle the fee issue through legislation he introduced in late July, the 401(k) Fair Disclosure for Retirement Security Act of 2007; Miller held hearings on the fee issue in early October. Meanwhile, more than a dozen cases regarding 401(k) fee disclosures are being battled in the courts now, says Stephen Saxon, a principle at Groom Law Group in Washington. "It's a fairly rare circumstance in Washington to have Congress, DOL, and the courts all focusing on the same issue at the same time," Saxon says. But in his mind, "it makes the most sense that Congress let DOL complete its work on these initiatives before they rewrite the law."