The President trotted out his old petty tax increases in his 2015 budget yesterday, and a few new ones. The new taxes would go towards, among other spending increases, an increase in the Earned Income Tax Credit welfare program for childless taxpayers.
If history is a guide, the Obama budget isn’t going to do well in Congress. His own party leadership in the Senate has already pledged to pass no budget at all. When his 2013 budget plan came up for a vote in Congress, it was rejected 99 -0 in the Senate and 414-0 in the House.
Still, it is worth mentioning some of the tax proposals, just so you are aware of them and their low likelihood of passage anytime soon. Also, in light of the recent Camp “tax reform” proposal, apparently no tax provision is too dumb to get bipartisan consideration, so some of these might even pass someday.
– S corporations: the bill would tax as self-employment income 100% of K-1 income from professional S corporations and partnerships of materially-participating owners. Businesses covered would include health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, brokerage services, and lobbying. For some reason, regular compensation would no longer be wages, but would instead be self-employment income. That would wreak havoc on everybody’s 401(k) and profit-sharing plans.
– Like-kind exchange benefits would be capped at $1 million per taxpayer per year. That won’t be popular with the real estate industry.
The bill also drags out dozens of the old proposals from his prior budgets, including LIFO repeal, ordinary income treatment for carried interests, capping the value of deductions at 28%, and capping build-ups in retirement plans. Nothing at all is likely to happen before the next election on these proposals, but as many Obama proposals are also included in some form in the GOP Camp plan, they all have to be considered viable next time a major tax bill shows signs of moving.
Leslie Book, President’s Budget Proposes Major Procedural and Administrative Changes (Procedurally Taxing). “The popular media has generally described the plan overall the way Reuters did in reporting that it ‘stands little or no chance of being approved as is by Congress, where Republicans, who control the House of Representatives, disagree with the president’s policy priorities.'”
Des Moines Register, Voters OK increasing franchise fee in Des Moines. The vote is the result of the city being ordered to repay an illegally-collected utility tax:
The money raised by increasing the franchise fee to 7.5 percent from 5 percent for seven years will be used to pay off about $40 million in bonds issued by the city to pay for the refund and administrative costs.
Among the “administrative costs” is $7 million in legal fees Des Moines was ordered to pay to the winning taxpayer attorneys after a scorched-earth court battle by the city to avoid repaying the illegal tax. Next time, don’t collect an illegal tax, and pay up if you’re called on it.
Alan Cole, True Marginal Tax Rates under Chairman Camp’s Proposal (Tax Policy Blog). Full of high-income phase-outs, it creates all sorts of goofy marginal rate anomalies:
Note the spike in rates at the low-end as a result of the earned-income tax credit phase-out. That doesn’t even include the effect of the state EITCs that piggyback on the federal credit. All of this is the opposite of tax reform. Apparently neither party is ready for reform.
Paul Neiffer, Additional Tax Reform Items. “Remember, this is just a proposal and nothing will happen this year.”
Gene Steurle, A Camp-ground for Tax Reformers (TaxVox).
Russ Fox, Deadlines for Us, but Not for Them:
For practitioners, the current state of the IRS is such that you can expect a lot of delays in responding to notices. Think months instead of weeks. Expect to have to call the IRS to verify that your response was received, and make sure clients are aware that the IRS is moving like molasses rolling uphill. Make sure anything you send is documented: certified mail with proof of receipt if by mail; if faxing, make sure you have the proof of receipt. Given the lengthy delays our clients are going to be in fear for far longer…
For taxpayers, you need to be aware that expediency is not part of today’s IRS. You have to be expedient in responding to notices but don’t expect the IRS to be expedient in getting back to you. Do not worry if it takes a long, long time to resolve something with the IRS. That’s just par for the course today.
Unfortunately, clients generally assume that if the IRS has sent a letter, that means the practitioner screwed up. Many people, especially old folks, just pay up when they get an IRS notice.
William Perez, Tax-Deductible Relocation Expenses
TaxGrrrl, Taxes From A To Z (2014): B Is For Basis
David Brunori, Taxing Coca Cola while Exempting Broccoli is Bad Policy Even for Native Americans (Tax Analysts Blog):
In any event, several newspapers reported that one of the sponsors of the proposal was himself obese. He decided to change his life and lost 100 pounds. And he did it without any tax increases or help from the government.
Like so many reformed smokers/overeaters/drinkers, he has become annoying about it.
Tax Justice Blog, State News Quick Hits: State Policy Makers Need a Tax History Lesson
TaxProf, The IRS Scandal, Day 300.
Cheer up! Filing Your Tax Return Is Terrible — But It Was Worse 100 Years Ago (Joseph Thorndike, Tax Analysts Blog).
News from the Profession. The Real Loser at the Oscars This Year Was PwC. (Going Concern)
Jason Dinesen shares his Tax Season Tunes:
Here’s a sampling of other tunes I listen to while working when not getting my Gordon Lightfoot fix:
Neil Diamond. Generally not his “famous” songs. I detest — and I mean absolutely revile — “Sweet Caroline,” for example. The original recording is okay, but he’s turned it into a hokey, over-the-top, karaoke show-tune over the last few decades. Blech. I like the more introspective songs like “Shilo,” “If You Know What I Mean,” “Stones,” pretty much anything from his relatively new “12 Songs” and “Home Before Dark” albums, and a host of other Neil Diamond songs that most people have probably never heard of.
An mix of songs that include Billy Joel, pop rock from the 60s and early 70s, Elvis, Willie Nelson, Conway Twitty, AC/DC, Juanes, Bon Jovi, CCR, Johnny Cash and Jimmy Buffett.
In case you were wondering, I believe Jason works alone.
Tags: TaxProf, Kay Bell, Russ Fox, David Brunori, William Perez, Joseph Thorndike, TaxGrrrl, Paul Neiffer, Going Concern, Donald Marron., William Gale, Gene Steurle, Jason Dinesen, EITC, Tax Justice Blog, Leslie Book, News from the Profession