Saturday May 18, 2013
Washington News
Boehner Predicts No Major Tax Reform
The Joint Select Committee on Deficit Reduction continues to meet daily in its efforts to find a deficit solution. If seven of the 12 Supercommittee members do not agree on a solution that meets the $1.2 trillion or greater standard, then automatic spending reductions take effect. Over 10 years, there could be $600 billion in Defense Department reductions and $600 billion in reductions in payments to Medicare providers.
Speaker of the House John Boehner (R-OH) stated on October 27 that he does not expect the Joint Select Committee to recommend major tax reform. He stated, "I've never believed the Supercommittee could rewrite the tax code. I think that's the appropriate role of the committee process in the House and Senate and I would expect it would stay that way."
While Supercommittee members have not commented publicly, it has been widely reported in Washington that both the Democratic members and Republican members have submitted plans.
The Democratic proposal would reduce the deficit by $3 trillion over 10 years. This plan includes approximately $1.3 trillion in revenue and $1.7 trillion in spending cuts. The spending cuts reportedly include a $500 billion reduction in Medicaid. Republican members have publicly indicated opposition to the tax increases in that plan.
The Republican plan includes $2 trillion in spending reductions. Approximately $685 billion of this total is through healthcare savings. House Ways and Means ranking minority member Sander Levin (D-MI) indicated that supercommittee Democrats would not accept the Republican proposal.
Editor's Note: The deadline for an agreement is rapidly approaching. While the bill must be published by November 23, 2011, it has to be scored by the Congressional Budget Office in order to be certain that it meets the $1.2 trillion target number. CBO Director Douglas Elmendorf stated that he would need two weeks to do the economic scoring of the bill. Therefore, his hope is that the Supercommittee bill will be available the first week of November.
Maya MacGuineas, President of the bipartisan Committee for a Responsible Federal Budget (CRFB), recently published recommendations for the Supercommittee. MacGuineas suggests that the Supercommittee should "go big" and seek to develop a $4 trillion solution.
CRFB states that the solution will involve both "shared sacrifice" and "economic gains." The shared sacrifice will necessarily involve a combination of reductions in discretionary government spending, entitlements and other government programs, while also requiring some measure of increased revenue.
CRFB suggested that a $4 trillion deficit solution is necessary to stabilize the debt. Under the current policies, the public debt is expected to reach 79% of the economy by 2021. With a $4 trillion solution, the public debt would be 67% of the economy in that year, and potentially could stabilize and be reduced as a percentage of the economy in the future.
The CFRB solution involves a combination of specific changes to both spending and revenue.
Editor's Note: This organization and your editor take no specific position on the CFRB solution. This analysis is a reasonably clear picture of the substantial actions necessary to produce savings of this magnitude. It is offered as a service for that reason.
On October 26 House Ways and Means Committee Chairman Dave Camp (R-MI) proposed a comprehensive tax reform of corporate taxes. He stated that the present "outdated" tax system discourages employers from hiring in America and transfers jobs overseas. Camp noted, "If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make the United States a more attractive place to invest and create the jobs this country needs."
The discussion proposal specifies the changes that Camp would make in the corporate tax system.
1. Corporate Tax Rate – The top rate would be reduced from 35% to 25%. The rate reductions would be accomplished through major changes in corporate tax deductions for depreciation, depletion and other items.
2. Territorial Tax System – The "worldwide" system of taxation was created five decades ago and the U.S. should move to a territorial tax system similar to that used by most other industrial nations.
3. Repatriation – There would be a 95% exclusion for overseas earnings brought back to America. At present, many large American companies have billions of dollars in cash and investments that are held overseas to avoid U.S. corporate taxes.
4. Anti-Abuse Rules – There would be multiple rules and guidelines to preclude companies avoiding a payment of their fair share of tax.
5. Global Competition – An updated tax system for corporations would encourage American companies to hire U.S. citizens and make them more competitive on a global basis.
The prime concern that Camp expressed is that all of the industrial nations in Europe and Asia (except Japan) have reduced their corporate tax rates during the past decade. The comparatively higher U.S. corporate tax rates place our companies at a disadvantage and encourage movement of jobs overseas.
One major concern with the reduction in rates is that manufacturing corporations will pay higher taxes because of the loss of their various deductions. Ways and Means Committee ranking member Sander Levin (D-MI) noted, "Lowering the top corporate tax rate to 25% without adding to the deficit would require repealing key provisions that strengthen domestic manufacturing and encourage American innovation and investment." He also expressed concern that lowering the corporate rates could cause a shift in the tax burden to individuals.
Editor's Note: It is a very long path to major tax reform. The main debate between the parties is whether or not tax reform should be revenue-neutral or produce higher revenue. Comprehensive tax reform will await a resolution of this debate in Congress.
On October 14 the IRS released Publication 4895, Tax Treatment of Property Acquired from a Decedent Dying in 2010.
If an executor makes a valid Sec. 1022 election by timely filing of Form 8939, Allocation of Increase in Basis for Property Received from a Decedent, a beneficiary may then use an increased basis in a future sale.
Publication 4895 outlines the IRS positions on the impact of Form 8939, the effect of a Sec. 1022 election, the nature of the executor statements to the recipients and the amount of basis increase.
Form 8939 is the appropriate method for an executor to make a Sec. 1022 election. It reports information about the property acquired from a decedent and allocates basis increases. See Notice 2011-66, 2011-35 IRB 184.
If the Sec. 1022 election is made, there will be no estate tax. The modified basis will consist of an amount calculated in three steps. First, the basis will be the lesser of the fair market value or the basis in the hands of the decedent. Second, there may be an allocated basis increase for the recipient. Third, there could be basis adjustments under Secs. 1016, 1017 or 1018 of the Internal Revenue Code.
The executor is required to furnish Schedule A of Form 8939 to each recipient. The recipients could include the surviving spouse, a trustee of a QTIP trust and trustee of a charitable remainder trust with the surviving spouse as sole noncharitable beneficiary or any other person. Schedule A will include the description of the property, the fair market value of the property on date of death, the amount of basis increase and any potential ordinary income element.
Property acquired from the decedent includes property acquired by bequest or inheritance, gifts during the decedent's lifetime, irrevocable trust distribtutions, other trusts with retained powers by the decedent or any other assets that pass by reason of decedent's death. The acquired property excludes a decedent's interest in a QTIP trust set up by a prior deceased spouse and income in respect of a decedent.
The executor is permitted to allocate basis increase to the recipients. The aggregate basis increase is generally $1,300,000. However, the spousal basis increase is $3 million. The spousal basis increase is limited to outright property from the decedent or QTIP assets.
The IRS has announced the Applicable Federal Rate (AFR) for November of 2011. The AFR under Sec. 7520 for the month of November will be 1.4%. The rates for October of 1.4% or September of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2011, pooled income funds in existence less than three tax years must use a 2.8% deemed rate of return. Federal rates are available by clicking here.
Speaker of the House John Boehner (R-OH) stated on October 27 that he does not expect the Joint Select Committee to recommend major tax reform. He stated, "I've never believed the Supercommittee could rewrite the tax code. I think that's the appropriate role of the committee process in the House and Senate and I would expect it would stay that way."
While Supercommittee members have not commented publicly, it has been widely reported in Washington that both the Democratic members and Republican members have submitted plans.
The Democratic proposal would reduce the deficit by $3 trillion over 10 years. This plan includes approximately $1.3 trillion in revenue and $1.7 trillion in spending cuts. The spending cuts reportedly include a $500 billion reduction in Medicaid. Republican members have publicly indicated opposition to the tax increases in that plan.
The Republican plan includes $2 trillion in spending reductions. Approximately $685 billion of this total is through healthcare savings. House Ways and Means ranking minority member Sander Levin (D-MI) indicated that supercommittee Democrats would not accept the Republican proposal.
Editor's Note: The deadline for an agreement is rapidly approaching. While the bill must be published by November 23, 2011, it has to be scored by the Congressional Budget Office in order to be certain that it meets the $1.2 trillion target number. CBO Director Douglas Elmendorf stated that he would need two weeks to do the economic scoring of the bill. Therefore, his hope is that the Supercommittee bill will be available the first week of November.
CRFB Proposes "Going Big"
Maya MacGuineas, President of the bipartisan Committee for a Responsible Federal Budget (CRFB), recently published recommendations for the Supercommittee. MacGuineas suggests that the Supercommittee should "go big" and seek to develop a $4 trillion solution.
CRFB states that the solution will involve both "shared sacrifice" and "economic gains." The shared sacrifice will necessarily involve a combination of reductions in discretionary government spending, entitlements and other government programs, while also requiring some measure of increased revenue.
CRFB suggested that a $4 trillion deficit solution is necessary to stabilize the debt. Under the current policies, the public debt is expected to reach 79% of the economy by 2021. With a $4 trillion solution, the public debt would be 67% of the economy in that year, and potentially could stabilize and be reduced as a percentage of the economy in the future.
The CFRB solution involves a combination of specific changes to both spending and revenue.
| Category | Solution | Budget Impact |
| Government Wide | Change CPI | $250 billion |
| Discretionary Spending | Specific Caps | $400 billion |
| Healthcare | Medicaid, Medicare, TRICARE Reform | $900 billion |
| Other Govt. | Agriculture, Retirement Programs, Fannie Mae, Freddie Mac | $350 billion |
| Social Security | Retirement Age, CPI | $300 billion |
| Revenues | Reduced Deductions and Rates | $1.2 trillion |
| Interest | Lower Debt Service | $600 billion |
| Total | $4 trillion |
Editor's Note: This organization and your editor take no specific position on the CFRB solution. This analysis is a reasonably clear picture of the substantial actions necessary to produce savings of this magnitude. It is offered as a service for that reason.
Camp Proposes Corporate Tax Reform
On October 26 House Ways and Means Committee Chairman Dave Camp (R-MI) proposed a comprehensive tax reform of corporate taxes. He stated that the present "outdated" tax system discourages employers from hiring in America and transfers jobs overseas. Camp noted, "If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make the United States a more attractive place to invest and create the jobs this country needs."
The discussion proposal specifies the changes that Camp would make in the corporate tax system.
1. Corporate Tax Rate – The top rate would be reduced from 35% to 25%. The rate reductions would be accomplished through major changes in corporate tax deductions for depreciation, depletion and other items.
2. Territorial Tax System – The "worldwide" system of taxation was created five decades ago and the U.S. should move to a territorial tax system similar to that used by most other industrial nations.
3. Repatriation – There would be a 95% exclusion for overseas earnings brought back to America. At present, many large American companies have billions of dollars in cash and investments that are held overseas to avoid U.S. corporate taxes.
4. Anti-Abuse Rules – There would be multiple rules and guidelines to preclude companies avoiding a payment of their fair share of tax.
5. Global Competition – An updated tax system for corporations would encourage American companies to hire U.S. citizens and make them more competitive on a global basis.
The prime concern that Camp expressed is that all of the industrial nations in Europe and Asia (except Japan) have reduced their corporate tax rates during the past decade. The comparatively higher U.S. corporate tax rates place our companies at a disadvantage and encourage movement of jobs overseas.
One major concern with the reduction in rates is that manufacturing corporations will pay higher taxes because of the loss of their various deductions. Ways and Means Committee ranking member Sander Levin (D-MI) noted, "Lowering the top corporate tax rate to 25% without adding to the deficit would require repealing key provisions that strengthen domestic manufacturing and encourage American innovation and investment." He also expressed concern that lowering the corporate rates could cause a shift in the tax burden to individuals.
Editor's Note: It is a very long path to major tax reform. The main debate between the parties is whether or not tax reform should be revenue-neutral or produce higher revenue. Comprehensive tax reform will await a resolution of this debate in Congress.
Carryover Basis Increase – Publication 4895
On October 14 the IRS released Publication 4895, Tax Treatment of Property Acquired from a Decedent Dying in 2010.
If an executor makes a valid Sec. 1022 election by timely filing of Form 8939, Allocation of Increase in Basis for Property Received from a Decedent, a beneficiary may then use an increased basis in a future sale.
Publication 4895 outlines the IRS positions on the impact of Form 8939, the effect of a Sec. 1022 election, the nature of the executor statements to the recipients and the amount of basis increase.
Form 8939 is the appropriate method for an executor to make a Sec. 1022 election. It reports information about the property acquired from a decedent and allocates basis increases. See Notice 2011-66, 2011-35 IRB 184.
If the Sec. 1022 election is made, there will be no estate tax. The modified basis will consist of an amount calculated in three steps. First, the basis will be the lesser of the fair market value or the basis in the hands of the decedent. Second, there may be an allocated basis increase for the recipient. Third, there could be basis adjustments under Secs. 1016, 1017 or 1018 of the Internal Revenue Code.
The executor is required to furnish Schedule A of Form 8939 to each recipient. The recipients could include the surviving spouse, a trustee of a QTIP trust and trustee of a charitable remainder trust with the surviving spouse as sole noncharitable beneficiary or any other person. Schedule A will include the description of the property, the fair market value of the property on date of death, the amount of basis increase and any potential ordinary income element.
Property acquired from the decedent includes property acquired by bequest or inheritance, gifts during the decedent's lifetime, irrevocable trust distribtutions, other trusts with retained powers by the decedent or any other assets that pass by reason of decedent's death. The acquired property excludes a decedent's interest in a QTIP trust set up by a prior deceased spouse and income in respect of a decedent.
The executor is permitted to allocate basis increase to the recipients. The aggregate basis increase is generally $1,300,000. However, the spousal basis increase is $3 million. The spousal basis increase is limited to outright property from the decedent or QTIP assets.
Applicable Federal Rate of 1.4% for November &3150; Rev. Rul. 2011-25; 2011-45 IRB 1 (18 Oct. 2011)
The IRS has announced the Applicable Federal Rate (AFR) for November of 2011. The AFR under Sec. 7520 for the month of November will be 1.4%. The rates for October of 1.4% or September of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2011, pooled income funds in existence less than three tax years must use a 2.8% deemed rate of return. Federal rates are available by clicking here.
Published October 28, 2011
Print
Email
Subscribe
BookmarkPrevious Articles
Senators Support Charitable Deductions
Both Parties Lobby Supercommittee Members
Support for Mortgage Deduction
Follow
Us:
Us:
