By the time it passes, we won’t even recognize this first rendition
President Obama released his FY 2013 budget this week, the first action in a process that is widely recognized as a negotiation, not a proclamation. Congressional approval of this budget will only happen after an intricate waltz of back and forth conciliation by our elected officials, with the document seeing many iterations before it is finalized. The budget proposal was President Obama’s opportunity to make a bold first move. In it he has proposed to reduce the federal government’s deficit by $4 trillion, with $1.43 trillion coming from the expiration of the Bush-era tax cuts for higher income taxpayers. In fact, increased taxes on higher income earners and businesses provide much of the president’s budget framework, which might have a direct effect on you.
But this dance number is far from over, so the impact of a final, approved budget cannot be determined. Below is a snap shot of the key tax initiatives, as they have been put forward. If you have questions about the FY 2012 Federal Budget Proposals, please contact your Clark Schaefer Hackett advisor.
The full text of the proposal can be found here:
http://www.whitehouse.gov/omb/budget
Tax Initiatives Proposed to Impact Individuals after 2012 (not an exhaustive list):
• Reinstate the 36 percent and 39.6 percent individual income tax rates for individuals with incomes over $200,000 and families with incomes over $250,000
• Reinstate the personal exemption phaseout and the limitation on itemized deductions, and limit the tax rate at which itemized deductions reduce tax liability to 28 percent for higher income individuals
• Tax dividends as ordinary income for higher income individuals (taxpayers in the 36 percent and 39.6 percent tax brackets)
• Tax capital gains at a 20 percent rate for individuals with incomes over $200,000 and families with incomes over $250,000
• Extend the federal estate tax at parameters in effect for calendar year 2009, which would be a top tax rate of 45 percent and an exemption amount of $3.5 million
• Return the gift tax exclusion to its 2009 level of $1 million
Other proposals for individuals include:
• Extend the employee-side payroll tax cut through the end of 2012
• Make permanent the American Opportunity Tax Credit
• Enhance the saver’s credit
• Extend individual tax extenders that expired after 2011
Tax Initiatives Proposed to Impact Businesses (not an exhaustive list):
• Eliminate certain oil and gas preferences
• Extend 100 percent bonus depreciation through the end of 2012
• Repeal the last-in, first-out (LIFO) method of accounting
• Create a new Manufacturing Communities Tax Credit
• Make permanent and enhance the research tax credit
• Provide a permanent 100 percent exclusion from tax for capital gains realized on the sale of certain small business stock held for more than five years
• Reform the Domestic Production Activities Deduction
• Enhance the Code Sec. 45R small employer health insurance credit
A corporate tax reform “framework” is expected to be released later in February, and additional details about a proposed minimum tax on overseas profits are also anticipated. We will work to keep you informed as these items develop.
