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Washington Tax Update: A Cup of Good News and a Pint of Uncertainty
By Dean Zerbe
Let's first start with the good news. When the Senate returns in September they will be considering a small business tax bill that has a number of old standbys that will benefit small and medium businesses – including Section 179 and accelerated depreciation. In addition, there is a new provision that we've been beating the drum on quite a bit at alliantgroup – removal of AMT limitations on general business credits 38(c). As many of you know, ending the AMT bar to general business credits will benefit a large number of small and medium companies.
I write about the small business bill in my Forbes online column and The Wall Street Journal recently discussed the new provision eliminating the AMT bar. Quoted in the WSJ are two key partners of alliantgroup – Jeff Resnick, managing partner of New York's Resnick Druckman Group and Joshua Hayes, tax partner at Eide Bailly's Phoenix, Arizona office.
The small business bill has received bipartisan support and the administration has been vocal in supporting its passage this September. It has a good chance of becoming law. I encourage CPAs who have clients that will benefit from the expansion of the General Business Credits through the AMT turnoff to write to your Senator and let them know of your support. This is a new provision and many Senators are not aware of how this change in the tax code will help businesses in their state. I've provided a form letter that may be of some assistance.
Uncertainty is just around the corner.
The tea leaves suggest that in September we will see Congress bringing heat (if not resolution) to the issue of the expiring tax cuts. While there will be much pounding of fists on desks it is hard to see an easy path for getting the 60 votes needed in the Senate to pass an extension of the tax cuts sans the top two rates. A handful of Democratic Senators have indicated that they want to see all the taxes extended and there has been little noise of Republicans breaking ranks on the issue. If the Democratic leadership gets traction for a deal look for capital gains to go to 20% and the smart money is that the dividend rate will stay at 20% as well (linked to capital gains).
Similarly with estate tax -- look for a good bit of jawing in September in the Congress but again hard to see a path to action. Senators Kyl and Lincoln have put forward a bipartisan compromise - $3.5 million indexed for inflation and the rates phased in to 35% over a 10 year period. The Kyl-Lincoln proposal would have received wide support back when we did not face high deficits – now it is unclear where the votes would be with the current Congress.
Extenders remain very popular across-the-board in Congress and the administration (especially the Research and Development Tax Credit) and I expect these provisions to be extended again without any break – the question as with everything else in taxes is when will it happen.
It doesn't get any easier for the Democratic leadership to make deals in lame duck. If current polling holds, the Republicans will have two additional Senate seats in a lame duck session – Illinois and Delaware. Those new Republican Senators will be seated immediately after the elections if they win – not waiting till January (in a nutshell this is because the elections are to fill the seats of Senators who were appointed). The climb to 60 votes gets only harder.
While I can see the outline of a deal for an uber-tax bill addressing all three (expiring tax cuts; estate/death; and extenders) the growing sense is that it is all going to have to wait for after the elections (or even into the new Congress) before there is more clarity.
For those seeking to advise your clients or you are trying to make your own plans -- while there are possible scenarios in which the top rates (and don't forget the reintroduction of the phase-outs of personal exemptions and itemized deductions – billions in hidden tax increases) would stay in place for next year those are throws of the dice. The only set piece is where the rates will be for the rest of this year.
On the positive side – the college football season is starting in just a few days. And while there is much uncertain in taxes I am certain that my Cornhuskers will have a better offense this year.
Dean Zerbe is national managing director of aAlliantGroup and a former senior tax counsel to Sen. Charles Grassley, R-Iowa.
Dean Zerbe is alliantgroup's National Managing Director. Dean was formerly Tax Counsel and Sr. Counsel on the Senate Finance Committee and was a key player in all the major tax legislation passed during his tenure. Dean speaks throughout the country and meets with accounting firms and their clients to discuss the outlook for short-term and long-term changes in tax policy as well as ways accounting firms can help their clients lower their tax bill.
Please visit the alliantgroup web site at www.alliantgroup.com.
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