The other shoe has dropped with the President's release today of how he proposes to raise revenues to pay for his $447 billion jobs program. It turns out to be a very old shoe.
Old standbys include a change that would reduce the value of deductions claimed by individuals making over $200,00 and married couples making more than $250,000. Families in the top two tax brackets (currently 33% and 35% and projected by the administration to be at 36% and 39.6% in 2013 when this provision would take effect) would only be able to claim their deductions against a 28% rate. That means they would not be able to get the full benefit of the deduction for their mortgage interest payments or their charitable contributions. Uncertain whether this will help an already struggling housing market. It certainly won't cheer charities.
The White House has made yet another run at carried interest – the share of profits taken by hedge fund managers. Currently, that profit is taxed at the long term capital gains rate, now a top 15% and scheduled to go to 20% when the Bush tax cuts expire at the end of 2012. (This is among the tax breaks for fellow billionaires that Berkshire Hathaway's Warren Buffet objects to.) Obama would subject carried interest to both the higher ordinary income tax rate (a top rate of 35% now, going to 39.6%) and to self-employment taxes (meaning Medicare taxes, since Social Security taxes are only imposed on the first $106,800 of salary). This provision, too, would not take effect until 2013.
Corporate jets won't be flying as high if Obama's proposal for a new, less favorable, depreciation schedule for them is enacted. I have yet to hear a good argument of how going after the thousands of jobs in the corporate jet industry is going to improve the economy. This provision has been driven by unhappiness about CEO's using corporate jets for personal travel, but could end up hurting welders and machinists instead.
The same bundle of oil and gas provisions that the administration has targeted since it first came into office are also on the list. These would include: repeal of deduction for intangible drilling and development cost in the case of oil and gas wells; repeal of deduction of tertiary injectants; repeal of percentage depletion for oil and gas wells; section 199 deduction not allowed with respect to oil, natural gas, or primary products; and, repeal marginal well production credit.
All of these revenue proposals have been around for a long time and neither the previous Democratic-controlled Congress nor the current Congress have shown any interest in enacting them. The president has not done himself any favors with these proposals in terms of increasing the likelihood of his jobs proposal being passed into law. The failure to provide new ideas for revenue raisers for Congress to consider is not helpful. The unemployed, working families, and businesses need a jobs bill – here's hoping the Congress can carry the load.
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 shortterm and long-term changes in tax policy as well as ways accounting firms can help their clients lower their tax bill.
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