More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
President Barack Obama has fired his opening salvo in the 2012 campaign, using his jobs proposal to redirect the narrative in the presidential race from the Republican focus on fiscal austerity to one of practical importance to millions of unemployed Americans—jobs.
Details of the president’s plan raises questions about his intentions since it includes many of the same tax increases that Congress has rejected in the past. Is Obama willing to reach an impolitic compromise to get the plan passed? Or does it mark the administration’s turn toward a more focused use of his bully pulpit as it turns its attention to 2012?
If the plan flops, Republicans will likely point to it as just another example of the president’s failed stimulus initiatives. But in today’s high unemployment environment, Republicans will need to tread lightly.
The plan would cut payroll taxes for businesses with up to $5 million payrolls and decrease employees’ share of Social Security taxes to 3.1 percent in 2012. The Jobs Act also includes a tax credit for businesses that hire people who have been unemployed for six months and extends a law that allows businesses to deduct 100 percent of some capital expenses in the first year. Additionally, it would extend unemployment insurance and expand a program that permits unemployment insurance funds to be utilized to start a new business.
“This is a bill that will put people back to work all across the country. This is a bill that will help our economy in a moment of national crisis,” Obama said. “This is a bill that is based on ideas from both Democrats and Republicans, and this is the bill that Congress needs to pass. No games. No politics. No delays. I’m sending this bill to Congress today, and they ought to pass it immediately. ”
Notwithstanding the president’s admonition, his proposal could be interpreted as gamesmanship itself. The cost of the jobs act would be covered by new tax deduction limits for individuals making $200,000 or more and families making $250,000 or more. These proposals would raise revenues by an estimated $400 billion over the next 10 years.
But the proposal faces what will likely be insurmountable Republican opposition in the House. The president has proposed similar tax increases on the “wealthy” from the beginning of his administration, each of which has died in Congress.
In addition to reducing tax deductions for “wealthy” families, the president’s proposal would change the deduction rules for corporate jets and close oil and gas tax loopholes, which would raise an additional total of about $43 billion. The bill would also recharacterize fund managers’ carried interests as ordinary income. In aggregate, the changes would increase tax revenue by an estimated $467 billion, covering the costs of the proposal.
There is some indication that the president may be willing to consider other options for paying for the jobs bill, but regardless of how it is paid for, it will set back the current deficit reduction drive and make the already difficult job of the deficit-reduction super committee even harder.
Without considering the expense of the Jobs Act, the super committee is charged with finding cuts of at least $1.5 triilion; failure could have devastating effects. If the committee fails to reach a compromise proposal or Congress does not adopt the committee’s proposals, a series of sharp automatic cuts will kick in, slashing budgets across the entire federal government, including the Defense Department.
If enacted, the Jobs Act’s tax increases would start in 2013.
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