|
 |
|
Greetings!
Holding true to our commitment to provide our clients with the most valuable tax information, we created this Fall eNewsletter to keep you informed of current tax issues, changes and pressing topics. Many changes can be expected due to the following: · Expiring Tax Laws · Presidential Election · Faltering Economy · Increasing Deficit Our focus for providing this information is to share, not promote a position. Throughout the articles we have highlighted pressing topics such as: 1. Romney and Obama Positions on Taxes 2. Upcoming Expiring Tax Laws 3. Impact on Individuals Based upon the George W. Bush Tax Cuts and the Payroll Tax Holiday expiring, we are in a position in which these changes could have a major impact on us individually. The combination of these policies expiring, budget cuts and other potential changes could plunge our nation into a recession. Real GDP could potentially fall 0.5 points and unemployment could rise to 9.1 percent. We need to be well informed of the possible effects these changes can have on us and know how each potential president plans on handling these pressing topics. As always, we will keep you updated with the news and changes that can impact you personally. Please feel free to contact us with questions concerning this newsletter. Best Regards: 
Donald J. Ciampi Sr, EA |
|
|
|
|
|
|
|
George W. Bush Tax Cuts to Expire 12/31/2012
Without significant tax code changes in 2013, America is on track to get hit with what would be the largest tax increase in our history. Income taxes will increase for all Americans when the George W. Bush-era tax cuts expire on December 31, 2012. In all, the cuts affect some of the poorest among us, as well as the richest, representing over 100 million Americans.
The Bush tax cuts involve health care taxes, the estate tax, and the alternative minimum tax. They ensure that even wealthy taxpayers pay some income tax, although in recent years, the tax has affected individuals of more modest means. Additionally there is the child tax credit and the expanded earned income tax credit for some individuals and families.
A family filing as married with two children earning $50,000.00 can expect to see their taxes increase significantly. The financial impact on an average middle-income household would be about $4,000.00, according to the Tax Policy Center estimates.
The likely economic impact of these taxes will affect Americans in every state differently, focusing mainly on the Northeast. These tax cuts are expected to be eliminated at the end of the year. However, with the presidential candidates having vastly different opinions on these cuts, we will have to await the results of the elections to truly measure the impact and timing. |
Payroll Tax Holiday to Expire
On December 24 of last year, Congress extended a bill that created a "payroll tax holiday" for many Americans. Under this tax holiday, the social security tax on self-employment decreased from 12.4% to 10.4%, while social security tax on wages decreased from 6.2% to 4.2%. Once again, this bill is set to expire on December 31, however, this time, the White House has not pushed for an extension and support is lacking for the following reasons:
First, both Democrats and Republicans would rather focus on the broader political and economic issues surrounding the Bush-era income tax cuts. These cuts, as well as the payroll tax holiday, were initially meant to be temporary, but are now deeply entrenched in the tax code and central to the budget battle.
Second, this tax increase is needed to help offset the deficit as well as protect the future of Social Security and Medicare.
Independent analysts say that the expiration of the tax cut could shave as much as a percentage point off economic output in 2013, with a 0.6% reduction in GDP and could cost the economy as many as one million jobs. However, independent economists say that the economy could shoulder the payroll tax increase without undue harm.
Regardless of the impact to the economy, these payroll tax cuts will adversely impact every employee in the United States. |
|
Looking at Our Presidential Candidates
Reflecting their political philosophies, Democratic President Barack Obama and Republican challenger Mitt Romney take sharply divergent paths when it comes to federal incomes taxes and taxing individuals and corporations. They both branch their viewpoints off past events that they believe were a success to the economy. Additionally, until a reform of our current, complicated tax system can be achieved, both President Obama and Mitt Romney have proposed tweaks to the existing tax code.
President Barack Obama:
Looking to past events, President Obama believes that tax cutting isn't always helpful and that raising taxes isn't always harmful. President Clinton raised taxes on high earners, and the 1990s economy did fine. Economic confidence rose in part because tax revenues were helping to diminish federal deficits (and for a time erase them). As for the Bush years, Obama cites falling tax revenues and weak regulation among the things that "got us in the mess in the first place."
President Obama is an advocate of a progressive tax system that ensures an equitable level of taxation for every income bracket. During his first term as President, Obama built a record of significant tax cuts including breaks for businesses and individuals in his stimulus package, and then adding a payroll tax cut for working families. His desire is to raise taxes on the wealthy and ensure they pay a minimum of 30 percent of their income. He supports extending Bush-era tax cuts for Americans making under $200,000, or $250,000 for couples.
Governor Mitt Romney:
As the Republican Presidential Candidate, Mitt Romney believes that lower tax rates for all will rekindle growth and job creation. History shows that low or falling taxes boost economic growth. The 1980s rebound under Ronald Reagan is a case in point.
In the 1990s, the economy was strong despite Clinton's tax hikes, not because of them. Most recently, the Bush tax cuts helped to restore job growth after 2003, Republicans argue, and weren't a proximate cause of the later financial crisis or recession.
Romney has stated that he would keep Bush-era tax cuts for all incomes and drop all tax rates further, by 20 percent. This would bring the top rate, for example, down to 28 percent from 35 percent and the lowest rate to 8 percent instead of 10 percent. He intended that people earning less than $200,000 per annum would be able to save money without the burden of taxes
He has also expressed a strong interest in curtailing deductions, credits and exemptions for the wealthiest. Ending the Alternative Minimum Tax for individuals eliminates capital gains tax for families making below $200,000 and cut corporate tax to 25 percent from 35 percent.
|
|
 Candidates' Position on Federal Taxes:
|
Topic |
President Barack Obama |
Governor Mitt Romney | |
Individual taxes
|
Bush-era tax cuts expire for households where income is more than $250,000.
Six tax rates with top rate applied to adjusted gross income of $200,000 for individuals, $250,000 for families:
Tax Rates
10 percent
15 percent
25 percent
28 percent
36 percent
39.6 percent |
Make the Bush-era Tax permanent.
Reduce current six tax rates by 20 percent. Also considering limiting itemized deductions to a certain dollar amount:
Tax Rates
8 percent
12 percent
20 percent
22.4 percent
26.4 percent
28 percent | |
Estate Taxes
|
Exempt estates worth up to $3.5 million and increase estate tax rate to 45 percent.
|
Repeal estate tax permanently. This would enable estates worth any amount to pass from one party to the next with no tax.
| |
Alternative minimum tax (AMT)
|
Replace the AMT with the so-called Buffet rule, which would require people making more than $1 million per year to pay at least 30 percent of investment income in taxes.
|
Repeal the AMT altogether.
| |
Interest, Dividend and Capital gains
|
Increase capital gains tax rate to 20 percent for high-earners. Impose the so-called Buffet rule, i.e., a minimum 30 percent tax on high-earners.
Dividends taxed as ordinary income for individuals with adjusted gross income of $200,000 or less ($250,000 for married couples filing jointly). |
Eliminate taxes on investment income for taxpayers with adjusted gross income of less than $200,000.
Retain 15 percent tax on interest, dividends and capital gains for all other taxpayers. |
|
|
Ciampi Tax & Financial Services, LLC
2278 Waterbury Road, Cheshire, CT 06410
(203).271-3801
www.ciampitax.com |
|
|
|
|
|
