Thursday, September 22, 2011

President’s “Plan For Economic Growth and Deficit Reduction”


I was reviewing the tax provisions of the President’s “Plan for Economic Growth and Deficit Reduction.” It is possible that the “Super Committee” may adopt some of the tax provisions, so perhaps it is worthwhile to review the proposals.
(1)  Extend through 2012 the 100% bonus first-year depreciation.
(2)  Reduce the employer portion of the social security tax from 6.2% to 3.1%.
a.       This would cap-out at $5 million in payroll.
b.      Therefore the maximum cut would be $155,000 ($5,000,000 times 3.1%).
(3)  Create a tax credit for hiring employees who have been out-of-work for more than 6 months.
(4)  Create a tax credit to offset the increase in social security tax attributable to payroll increases over the corresponding period of the preceding year.
a.       So if your payroll was $1 million last year and $1.5 million this year, you would receive a credit for the social security taxes on the $0.5 million increase.
b.      There is a cap of $50 million.
c.       The credit would be good for the last quarter of this year and all of 2012.
(5)  The pre-EGTRAA tax rates would return for those making over $200,000 and $250,000.
OBSERVATION: Senator Schumer thinks these limits should be higher for New Yorkers. He is the senator from … New York.
(6)  Limit the tax rate at which high-incomes can reduce their tax to 28% for itemized deductions, excluded foreign income, health insurance and other selected deductions.
OBSERVATION: Right… make the calculation so complicated that even tax software won’t be able to get it right. Perhaps Congress and the WH should start with eliminating the phase-outs for personal exemptions, itemized deductions, student loan interest, education credits, child credit, AMT exemption and etc that would make this a circular calculation to stress even a mathematics graduate student.

(7)  Reduce the employee social security tax from 6.2% to 3.1%.
OBSERVATION:  Read this in conjunction with (2) above.
(8)  Repeal last-in first-out accounting (LIFO).
OBSERVATION: There is no accounting reason for this, as LIFO is considered to be a generally accepted accounting principle. It forms the tax accounting backbone of virtually every vehicle dealership in the nation.
(9)  Repeal the use of lower-of-cost –or-market inventory accounting.
OBSERVATION: Again, there is no accounting reason for this.
(10)  Increase the net FUTA tax from 0.6% to 0.8%.
OBSERVATION:  FUTA was increased on a “temporary” basis from 0.6% to 0.8% in 1976, although it went back to 0.6% this year. Does that sound “temporary” to you?
(11)  Eliminate the percentage depletion and intangible drilling cost provisions for oil and gas companies.
(12)  Eliminate coal activity expensing of exploration and development costs, as well as percentage depletion for hard mineral deposits and capital gains for royalties.
(13)  Modify the transfer-for-value exception on life insurance contracts.
OBSERVATION: Seems the viatical industry has drawn attention to itself.
(14)  Require business jets to be depreciated over 7 years rather than 5.
(15)  Revise the rules on transfers of intangibles to controlled foreign corporations.
OBSERVATION:  Think Google.
(16)  Revise the rules on the deductibility of interest paid to foreign persons.
I leave it to you to deem how serious you consider these proposals.

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