Obama Strikes Deal on Bush Tax Cuts and Unemployment

Obama Strikes Deal on Bush Tax Cuts and Unemployment

by | Dec 7, 2010 | Archives

WASHINGTON, D.C. – President Obama announced a deal Monday evening to extend the Bush-era tax rates for two years, as well as other tax breaks and unemployment benefits, after Republican and Democratic congressional leaders forged a compromise in meetings with administration officials.
However, the deal to extend the Bush tax cuts even for those making more than $250,000 a year met with criticism from some Democrats who accused the president of giving in to Republican tactics and violating one of his campaign pledges.

House Democrats passed a bill last week to extend the income tax rates only for those making less than $250,000 a year, but the Senate failed last Saturday to pass two versions of the bill that would have extended the current tax rates for those making less than $250,000 or $1 million a year. Vice President Joe Biden plans to meet with members of the Senate Democratic caucus on Tuesday to sell the plan to them.

Obama argued that the deal was necessary to sustain the economic recovery. “Make no mistake,” he said. “Allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs.”

The deal would also extend unemployment benefits for 13 months for those whose benefits ran out at the end of last month or would have run out by the end of the year. An estimated 2 million people were expected to lose their emergency unemployment insurance benefits by the end of December.

Other elements of the deal would extend several other tax breaks that the administration believes are crucial to generating jobs, sustaining the economy, and making higher education more affordable.

“In exchange for a temporary extension of the tax cuts for the wealthiest Americans, we will be able to protect key tax cuts for working families — the Earned Income Tax Credit that helps families climb out of poverty; the Child Tax Credit that makes sure families don’t see their taxes jump up to $1,000 for every child; and the American Opportunity Tax Credit that ensures over 8 million students and their families don’t suddenly see the cost of college shooting up,” said Obama.

The Making Work Pay payroll tax cut, which was introduced with last year’s economic stimulus bill, would be extended for another year under the deal, as well as bonus depreciation tax breaks that allow businesses to deduct the entire cost of purchasing equipment. “This agreement would also mean a 2 percent employee payroll tax cut for workers next year — a tax cut that economists across the political spectrum agree is one of the most powerful things we can do to create jobs and boost economic growth,” said Obama. “And we will prevent — we will provide incentives for businesses to invest and create jobs by allowing them to completely write off their investments next year.”

The agreement also encompasses the estate tax, which temporarily went to zero at the beginning of this year, but was scheduled to return in January at a rate of 55 percent for estates over $1 million. The tax rate will instead be capped at 35 percent for estates, with an exemption of $5 million for individuals and $10 million for couples.

The President said the tax cuts would help those who had been hit hardest by the recession, and whose taxes would otherwise go up while everybody else’s stayed the same. He also pointed out that the deal would help the unemployed.

“Under this agreement, unemployment insurance will also be extended for another 13 months, which will be welcome relief for 2 million Americans who are facing the prospect of having this lifeline yanked away from them right in the middle of the holiday season,” said Obama.

He noted that without a deal with Republican lawmakers, taxes would have gone up for everybody next year.

“What is abundantly clear to everyone in this town is that Republicans will block a permanent tax cut for the middle class unless they also get a permanent tax cut for the wealthiest Americans, regardless of the cost or impact on the deficit,” he said.

“We saw that in two different votes in the Senate that were taken this weekend,” Obama added. “And without a willingness to give on both sides, there’s no reason to believe that this stalemate won’t continue well into next year. This would be a chilling prospect for the American people whose taxes are currently scheduled to go up on January 1st because of arrangements that were made back in 2001 and 2003 under the Bush tax cuts.”

Obama emphasized that he was not willing to let that happen. “I know there’s some people in my own party and in the other party who would rather prolong this battle, even if we can’t reach a compromise,” he said. “But I’m not willing to let working families across this country become collateral damage for political warfare here in Washington. And I’m not willing to let our economy slip backwards just as we’re pulling ourselves out of this devastating recession.”

Senate Minority Leader Mitch McConnell, R-Ken., gave his endorsement on the deal. “I appreciate the determined efforts of the President and Vice President in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth,” he said in a statement. “Their efforts reflect a growing bipartisan belief that a new direction is needed if we are to revive the economy and help put millions of Americans back to work. Members of the Senate and House will review this bipartisan agreement, but I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown.”

However, some Senate Democrats felt that Obama gave in too quickly to Republican demands during the negotiations. “I don’t know if he caved,” Sen. Sherrod Brown, D-Ohio, told CNN. “I think he could have gotten a better agreement.”

By Michael Cohn
Accounting Today

Standard Mileage Rates for 2011

Standard Mileage Rates for 2011

by | Dec 6, 2010 | Archives

Instead of using the business portion of the actual expenses of operating a vehicle, the IRS permits taxpayers to use a standard mileage rate. IRS has issued new standard mileage rates effective for travel on or after January 1, 2011.

Business mileage rate is 51 cents per mile (up from the 50 cents per mile for 2010); 22 cents per mile is the depreciation component (down from 23 cents per mile for 2010).

Charitable rate is 14 cents per mile and is set by Congress therefore does not change until Congress makes such a change.

Medical and moving rate is 19 (up from the 16.5 cents per mile for 2010).

House Democrats Pass Middle-Class Tax Cut Package

House Democrats Pass Middle-Class Tax Cut Package

by | Dec 3, 2010 | Archives

House Democrats passed a tax cut package on Thursday aimed at extending the Bush-era tax cuts for taxpayers who earn below $250,000, but the prospects for passage in the Senate will depend on the deal worked out by a bipartisan group of four lawmakers and two Obama administration officials.

“Today the House took a critical step forward for hardworking middle-income families in need of economic certainty and security,” said House Ways and Means Committee Chairman Sander M. Levin, D-Mich., in a statement. “Republicans wanted to keep middle-income tax cuts hostage, to combine them with tax cuts for the wealthiest few, but today we freed millions of middle-income families from this hostage situation. This bill is about one thing – tax cuts for people and businesses struggling to rebuild in the wake of a recession. Provisions in this bill will lower taxes for every American taxpayer and small business to help them grow and create jobs. Today the House did the right thing and stood up for those families and businesses and I urge my colleagues in the Senate to follow suit and pass this tax relief immediately.”

However, Republican lawmakers dismissed the Democrats’ bill as a political stunt. “I’m trying to catch my breath so I don’t refer to this maneuver going on today as chicken crap, all right?,” said House Minority Leader John Boehner, R-Ohio, during a press conference, according to the Associated Press.

The vote was 234-188, with 20 Democrats joining nearly every Republican in opposing the bill.

On Wednesday, Senate Minority Leader Mitch McConnell, R-Ken., delivered a letter from all 42 Senate Republicans to Senate Majority Leader Harry Reid, D-Nev., stating that they would not allow any other legislation to proceed until they have passed votes to protect every taxpayer from a tax hike and to continue funding government operations.

“We write to inform you that we will not agree to invoke cloture on the motion to proceed to any legislative item until the Senate has acted to fund the government and we have prevented the tax increase that is currently awaiting all American taxpayers,” they wrote.

The bill passed by House Democrats on Thursday addresses not only the expiring Bush income tax cuts, but also other issues such as a two-year patch to prevent the alternative minimum tax from spreading to another 25 million families, as well as capital gains and dividend taxes, the so-called “marriage penalty,” education tax credits, the adoption tax credit, employee tax credits for child care, enhanced small business expensing and other items.

Estate and Gift Planning Update

Estate and Gift Planning Update

by | Dec 2, 2010 | Archives

Two quick updates as we head into December and the last month of the 2010 Estate Tax Repeal:

2011 Annual Gift Tax Exclusion to Remain the Same at $13,000. In 2010, the annual gift tax exclusion permits a taxpayer to gift $13,000 to any beneficiary, annually, even if the taxpayer has used up his or her $1 million lifetime gift exclusion. The 1997 Tax Reform Act tied the annual exclusion amount to increases in the CPI Index, and as a result, the annual exclusion has increased from $10,000 in 1997 to $13,000 currently. Due to a lack of significant inflation in 2010, the maximum gift tax annual exclusion in 2011 will remain at $13,000. This should also serve as a reminder that there is approximately one month left to take advantage of your 2010 annual exclusion gifts.

December AFRs even lower than historically low November AFRs. The December Applicable Federal Rates were just released, with the “7520 rate” falling to 1.8% from 2% in November. With such low rates, techniques such as GRATs and Sales to Grantor Trusts are even more attractive due to the low amount of interest that needs to be paid back to the taxpayer as a result of the transfers made by the taxpayer.