Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Financial Planning > Tax Planning > Tax Reform

Tax cuts extended. Now how about those jobs?

X
Your article was successfully shared with the contacts you provided.

OK, wealthy Americans — you’re up to bat. Looks like you’ve got your Bush tax cuts secured for the next two years. Now will you drop the “uncertainty” excuse and start creating those jobs you’ve promised if you aren’t burdened by a tax increase?

As you’ve no doubt heard by now, President Obama announced on Monday that he reached an agreement with Republican leaders that would allow all Americans, including the wealthiest, to keep the Bush tax cuts for the next two years. Among the compromises in the agreement is a two-year return of the estate tax starting in 2011 at a $5 million exemption rate and 35% — a significantly higher exemption and much lower tax rate than the $1 million and 55% that had been scheduled to return on Jan. 1, 2011.

While it is not the permanent repeal of the estate tax that Republicans wanted, it does appear to be a next-best-case scenario for them and wealthy Americans. Not only is the $5 million/35% combination much more palatable than the $1 million/55% option, but it is also a better deal than the other much-discussed proposal, which would have been a return to the 2009 levels of $3.5 million and 45%.

While this is again a temporary step and not a permanent decision, the two-year agreement would finally allow financial services professionals to get past the great uncertainty of the past year in regard to what level the federal estate tax would reappear after 2010′s unlikely sunset — if it wasn’t permanently repealed.

But today I want to get back to the broader meaning of the extension of the Bush tax cuts — assuming this gets approved by Congress. I don’t know about you, but I have been fairly frustrated with the explanation generally offered by businesses as to why they aren’t adding jobs: Uncertainty about government policy with regard to the health care reform bill and the status of the Bush tax cuts.

The uncertainty regarding the impact of the health care reform bill is not going away anytime soon. But I do hope that the two-year extension of the Bush tax cuts for even the wealthiest Americans will remove some of the perceived gridlock — as well as an excuse for doing nothing on the job-creation front. When Congress adjourned earlier this year to focus on the midterm election without deciding tax rates for 2011, Republican House leader John Boehner said, “The question right now that the American people are asking is, ‘Where are the jobs?’ And we don’t have jobs … because of uncertainty affecting families and small businesses. We can help clear out … this uncertainty by extending all of the current tax rates and cutting spending.”

Around the same time, Rep. Paul Ryan (R-Wis.) said, “I know uncertainty is a new economic buzzword but for good reason. If we can reduce it, we’ll unlock capital.”

OK, it looks like your tax cuts will be extended. Now let’s see if businesses start hiring in any measurable manner as a result. Many economists think large corporations aren’t hiring because they have been highly profitable this year with fewer workers and will only add jobs in significant numbers abroad, where they see more opportunity for growth. Small businesses aren’t hiring significantly because loans for expansion are hard to come by, and consumers are paying off debts while saving more and spending less.

It has been very easy in the last two years for businesses to blame the uncertainty of government policy and use it as an excuse to justify a “wait-and-see, stay-on-the-sidelines” attitude. Now let’s remove the tax rate uncertainty from the equation and see if that helps or if health care reform uncertainty now becomes even more of a crutch for inactivity.

As always, I’d love to hear your thoughts via the comment box below.

More blog entries from Brian Anderson.


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.