On November 6, 2012, Americans will elect the occupant of the White House for the next four years. As President of the United States, the winner will play a major role shaping tax policy and possibly reforming the entire Tax Code. This briefing describes the tax policies of President Obama and former Governor Mitt Romney, with analysis of the potential impact of their tax positions both for the immediate future and for 2014 and beyond.
Under current law, the Bush-era tax cuts (reduced income tax rates, reduced capital gains/dividends tax rates, and much more) are scheduled to expire after December 31, 2012. Effective January 1, 2013, sequestration under the Budget Control Act of 2011 is scheduled to take effect, with the goal of reducing the Federal budget deficit by nearly $1 trillion over 10 years. In addition, after 2011, a host of so-called tax extenders expired, and after 2012, numerous additional temporary incentives are scheduled to sunset. Moreover, the 2012 payroll tax holiday, which reduced the employee-share of OASDI taxes by two percentage points, is also slated to expire after December 31, 2012. The combination of all these events has many commentators referring to 2013 as “taxmageddon” or the “fiscal cliff.”
The balance between Democrats and Republicans in the House and the Senate may also change on election day. However, whether either party acquires sufficient political capital, let alone a mandate, on taxes to address short-term issues such as sunsetting provisions and long-term issues like tax reform, remains to be seen.
Between the date of publication and election day, the positions of the candidates may change. CJBS has based this briefing on what we consider accurate, nonpartisan and unbiased information at the time of publication.
|Obama —Individual taxes||Romney – Individual taxes|
|2013 rates higher for higher-income taxpayers only||2013 rates same as 2012 for all taxpayers|
|Unspecified future date: lower rates for middle/lower income brackets||Unspecified future date: 20% income tax rate reduction for all taxpayers|
|Higher capital gains/dividend rate for higher-income taxpayers||Eliminate tax on investment income for AGI below $200,000|
|$3.5 million estate tax exemption/45% rate||Abolish the estate tax|
|Replace AMT with “Buffett rule”||Repeal the AMT|
|Obama – Corporate Taxes||Romney—Corporate Taxes|
|Reduce maximum corporate tax rate to 28% (25% for manufacturing)||Reduce maximum corporate rate to 25%|
|Maintain worldwide system but with reforms||Implement territorial system of international tax|
|SELECTED CHANGES IN FEDERAL TAXES: 2012-2013 IF CONGRESS FAILS TO ACT|
|Top individual tax rate||35%||39.6%|
|Dividends||15%*||Taxed at ordinary income rates|
|Top estate tax rate||35%||55%|
|Child tax credit||$1,000||$500|
|AOTC||Up to $2,500||Unavailable|
|Code Sec. 179 dollar limit||$139,000**||$25,000|
|WOTC for veterans||Up to $9,600||Unavailable|
|Research tax credit||Unavailable||Unavailable|
|Wind energy PTC||Available||Unavailable|
|*Zero percent for taxpayers in the 10 and 15 percent brackets|
|**As adjusted for inflation|
Individuals: 2014 and Beyond
The basic goal for tax reform on the individual tax level expressed by both candidates is to broaden the tax base and lower tax rates. The candidates agree that tax reform should be revenue neutral. Each candidate also forecasts an improved economy from the savings of a simplified tax system and lower overall rates.
Businesses: 2014 and Beyond
Corporate tax reform, and business tax reform in general, has been raised by several Congressional committees and both candidates over the past year as a necessary long range step in making businesses more innovative and competitive. Based upon the multilayered considerations involved, however, concrete changes are not anticipated until 2014 or later. Specific issues include:
- Corporate Tax Rates
- International Proposals
- Other Business Reforms
Note: A more comprehensive PDF version of this brief can be seen on the CJBS website at: http://www.cjbs.com/Email/October2012/CJBS_long.pdf
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at firstname.lastname@example.org if you have any questions about this posting or if I may be of assistance in any way.