By Dean Zerbe, alliantgroup National Managing Director | July 23, 2012
As some of you may have heard in the news, the Democrats in the Senate are proposing an extension of some of the expiring tax provisions. The real thing to pay attention to here is what didn't happen.
Two things; first – the dividends were proposed to stay linked to capital gains – 20% (setting aside the 3.8% tax increase from health care) and NOT going up to the ordinary income level of 39.6% (and as proposed by President Obama in his budget). I think this is a big signal right out of the gate that the Democrats don't want to fight on dividends and are happy to keep dividends tied to capital gains. This is big news especially for the IC-DISC export incentive (although with IC-DISC, it is vital to pay close attention to the recent IRS audit guide so that you are sure it's being done right).
Second big thing – a complete pass on estate/gift tax. The Democrats didn't even include estate/gift tax in their proposal, because they were unable to find agreement within their caucus. Again, I think this indicates that if Obama wins, that it is not a given that the exemption cap will go down from $5 million to $3.5 million and the rate will increase from 35% to 45%. There are a number of Democrats who would like to keep the cap at $5 million and 35% (and a handful who want it to go to $1 million and 55%). The estate tax is shaping up to be a real fight if Obama wins (if Romney wins – fairly clear we stay at current policy – $5 million and 35%).