Capital Corner:  Stocking Stuffers

Jim Brandenburg, CPA, MST, Shareholder - Tax   email | bio
December 2009

Following the Thanksgiving recess, health care reform stays atop the list as Congress has many pressing issues to confront before the end of the year. Some of the most important legislation for year will be stuffed into the legislative calendar over the next few weeks.

Prognosis for Health Care Reform

Prior to the Thanksgiving recess, the Senate voted 60-39 along party lines to proceed to consideration of its comprehensive health care reform bill, the “Patient Protection and Affordable Care Act”). The bill was carefully crafted by Senate Majority Leader Harry Reid, to address many concerns of wavering Senators. It is primarily funded by: a payroll tax hike on high-income individuals and their employers, tax increases on certain health care industries and a proposed excise tax on premium health insurance plans. Debate on the bill began in early December. The Senate calendar and the bill’s details are still fluid, and it is uncertain when a final vote will take place. The Senate is now in session seven days a week, focused almost exclusively on health care legislation. Once Reid has the sixty votes necessary to sustain an expected filibuster, he will then move for a final vote.

The House passed its version of the health care legislation in early November. The House bill is primarily funded by a surtax of 5.4 percent on married taxpayers with adjusted gross income (AGI) above $1,000,000 and on individuals with AGI above $500,000. A joint congressional conference committee will need to reconcile the House and Senate versions by taking pieces of each, or developing entirely new provisions.

Extension of Expiring Tax Provisions (the “Extenders”)

The House will begin considering a bill that would extend expiring tax provisions. There are over forty separate tax provisions that are scheduled to expire at the end of 2009. Included is the 15-year straight-line cost recovery for qualified leasehold improvements, the R&D tax credit, and charitable IRA distributions. One provision that will help pay for this bill is the taxing of certain partnership interests. This bill will likely pass with few challenges; however, final passage may slip into early 2010 (retroactive back to January 1, 2010).

Estate Tax

The House pushed through estate tax legislation on December 3, 2009. Estate tax is scheduled to be eliminated in 2010 and reappear in 2011 with a maximum estate tax rate of 55 percent and a unified credit exemption amount of $1,000,000. The “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009” (H.R. 4154) permanently extends estate tax at its 2009 levels. This bill would yield the following estate tax amounts:

• A maximum estate tax rate of 45 percent;
• An exemption amount of $7 million for married couples, and $3.5 million for individuals;
• Carryover basis provisions would be repealed;
• And, no changes concerning discounts in estate valuations.

With the short amount of time remaining in 2009, the Senate must soon decide its course of action. If an agreement is not reached, a one-year fix of retaining the 2009 estate tax provisions through 2010 is still a possibility. Negotiations could then continue in 2010 for a longer term estate tax bill.

Other Initiatives

Congress may also tackle the following other initiatives:

• Jobs Package. Congress is looking at the current unemployment situation and may seek new measures to assist employers and employees. Job credits and other incentives are possible for employers, as well as continuing COBRA insurance coverage for certain unemployed workers.
• Stock Tax. Congress is also considering imposing a tax on each stock or security sold as a way to fund certain financial reform proposals.
• “Afghani-Tax.” Several congressional leaders are considering legislation that would fund the administration’s new initiative in Afghanistan with a separate excise tax on individuals and corporations.

The outlook for each of these provisions as well as their timetable for 2009 is uncertain. As the days dwindle away in 2009, it is possible that a larger bill may be implemented to cover several bills. Much will take place before Congress wraps up and puts a bow on 2009. Stay tuned . . .