More On Tax Planningfrom The Advisor's Professional Library
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
President Barack Obama said Monday afternoon that a deal to avert the fiscal cliff--at least making sure taxes don't go up on middle class Americans on New Year's day--is "in sight." Speaking from the White House, Obama said he was "hopeful" that Congress can "get a deal done. But it's not done" yet.
While an agreement would prevent a tax hike from hitting 98% of Americans come tomorrow, Obama said a "potential agreement" would also extend tax credits for families with children, the tuition tax credit and tax credit for clean energy companies as well as unemployment insurance.
Obama said that the "modest goal" of preventing middle class tax hikes can be accomplished. "Lawmakers are close, but they are not there yet," he said.
But as the deadline was fast approaching to avert going over the fiscal cliff, experts were divided as to whether lawmakers will act in time.
When the Senate reconvened at 11:00 am on Monday, Senate Majority Leader Harry Reid, D- Nev., said, “Negotiations continue as I speak. Time is running out. There are still some issues that need to be resolved before we can bring legislation to the floor.”
Politico reported Monday morning that Senate Minority Leader Mitch McConnell, R-Ky., and Vice President Joe Biden engaged in “furious overnight negotiations to avert the fiscal cliff and made major progress toward a year-end tax deal.”
McConnell and Biden, who served in the Senate for 23 years, “are closing in on an agreement that would hike tax rates for families who earn more than $450,000, and individuals who make more than $400,000,” according to Politico.
Other Washington watchers believe that Congress will likely go over the fiscal cliff. John Savercool, UBS Americas’ senior lobbyist told Bloomberg TV’s Market Makers on Monday morning that he believed lawmakers would sign a deal “later in the week.” Lawmakers believe they can “act later in the week and it would not have a disastrous effect on the markets,” as the markets are closed Tuesday, New Year’s day, Savercool said.
As negotiations stalled over the weekend, McConnell reached out to Biden to help break the deadlock. Both Biden and McConnell spoke via phone at 6:30 a.m. Monday morning, according to Bloomberg, suggesting a compromise deal was still doable.
While UBS’ Savercool agreed that there still could be a vote on a deal on Monday, he believed “it will take time to get votes on a package,” and that a deal “will likely occur later in the week.”
Joe Lieber of Washington Analysis said in his Monday commentary that he also believes that “the odds continue to favor going over the cliff.” If a deal is not reached by midnight Monday, "one is likely to be reached in January, and perhaps even the first week or so of 2013,” he said. “The worst case scenario,” he continued, “would see the fiscal cliff issues being resolved during the debt limit debate sometime in February or March.”
Lieber then laid out where the current Cliff negotiations stand:
- During discussions on Sunday, Republicans pushed to have the Bush tax cuts expire for individuals making $450,000 and couples making $550,000. Democrats were said to be contemplating thresholds of $360,000 for individuals and $450,000 for couples. Therefore, progress appears to be happening on the rate front, but since voting on these thresholds after the New Year would constitute a tax cut, rather than a tacit tax increase for some payers, the odds still favor an agreement after Jan. 1. However, the contours of an agreement are taking form.
- Republicans were also pushing for an extension of the estate tax, which has received little attention as yet, but also expires at the end of the year. Currently, estates valued at more than $5.1 million are taxed at 35%, and Republicans want that to continue, instead of reverting to a pre-Bush rate of 55% on estates valued at more than $1 million. Democrats are “considering” such an offer.
- There is also some question of whether the “chained CPI” provision for calculating Social Security is part of the negotiations. Republicans had demanded that it be included, but there are some reports that Senate leadership has backed away from that position. However, we have a hard time believing the Republicans, particularly House Republicans, will vote for a package that does not include at least some symbolic spending cuts, which the chained CPI provision could provide.
Nancy Altman, co-director of Social Security Works, released a statement Sunday applauding Reid for “forcefully rejecting” the Senate Republicans effort to cut Social Security COLAs. Eric Kingson, co-chair of the Strengthen Social Security Coalition, said in the same statement that ”We urge Senate Republicans and their House colleagues to back off from demanding this 3% cut to Social Security as the price they want to extract to end the Bush tax cuts for the most privileged 2%; to not cut off unemployment benefits for 2 million Americans.”