The Tax Roundup is reporting from Muscatine, Iowa, home of the 900-lb gorilla of Iowa tax policy, Iowans for Tax Relief. Also a 24/7 WalMart, for business travelers who forget to pack socks.
Roger McEowen and IRS Taxpayer Liason Christy Maitre give the latest scoop on the Fiscal Cliff at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School, Muscatine session.
Department of We’re Doomed: The leaders of the House Ways and Means Committee say that they don’t plan to do an “AMT patch” separately from the “fiscal cliff” negotiations for next year. Absent a patch, the AMT exemption for 2012 will decline drastically, throwing tens of millions of new taxpayers into AMT and increasing the tax bill for some taxpayers by over $8,000. Tax Analysts reports ($link)
Asked by reporters about the AMT patch, which has caused anxiety for IRS officials preparing for the coming tax return filing season, Ways and Means Chair Dave Camp, R-Mich., responded, “I’m hopeful that we will address AMT by the end of the year.” He added that he doesn’t think a patch will be passed as stand-alone legislation.
Ways and Means ranking minority member Sander M. Levin, D-Mich., also expects the AMT patch and the extenders to be included in a larger deal on the fiscal cliff. “I think it’s preferable for everything to be put into a package. They relate to each other,” he told Tax Analysts.
The IRS warned last week that failure to patch AMT will delay filing season for affected taxpayers to, at best, sometime in March, with punishing big tax bills for millions of unsuspecting taxpayers. Now Congress ties the immediate catastrophe of not patching the AMT to the impending catastrophe of the scheduled tax rate increase. No small failures for these guys.
Fiscal Cliff self-help: Pressure’s on to sell farmland before end of the year (Dan Piller, Des Moines Register:
The clean, placid appearance of post-harvest Iowa farmland appears to be far removed from the messy fog of Congressional politics and the fiscal cliff.
But pressure is intense to sell land before Jan. 1 when, if Congress doesn’t intervene, capital gains taxes will rise from 15 percent to 23.8 percent and deductions on estate taxes will drop from $5 million to $1 million.
Yes, taxes do affect behavior:
“The tax changes are on everybody’s minds. We have a sale every day, except Sundays, between now and Thankgiving,” regional sales manager Sam Kain of Farmers National Co. said before selling 169 acres of Bremer County farmland from the estate of Alvin and Maxine Walther on the day before the election.
“I’ve been in this business for 30 years and I’ve never seen it this busy,” Kain said.
Selling now doesn’t necessarily help with the estate tax problem (unless, improbably, farm prices continue to rise), but it can make a big difference on income taxes.
Anthony Nitti, 5 Tax Planning Strategies For Dealing With The Additional 3.8% Obamacare Tax On Investment Income
Peter Reilly, Carbon Tax Getting Serious Consideration As CBO Seeks To Address Regressiveness. Sorry, the rich guy isn’t buying.
Martin Sullivan, The Hidden Economic Damage of Deduction Caps (Tax.com)
In other news…
Robert D. Flach, DEDUCTING SANDY-RELATED VOLUNTEER EXPENSES
Because one disaster deserves another. Hostess bakery’s closure prompts another try at a federal fat tax (Kay Bell)
At least it’s something they’re good at: As Hostess Folds, Congress Thinks of New Ways To Kill Snack Food Industry (TaxGrrrl)
Paul Neiffer, Don’t Forget The Small Employer Health Care Credit
Brian Strahle, Take Advantage of Multistate Tax Year-End Issues and Opportunities
Jim Maule, Taxation of Medical Study Payments
Be thankful, it could be worse.
As we wind down for Thanksgiving week, lets give thanks for not being in California. David Henderson discusses the Golden State’s self-inflicted pending disaster in It’s not Go Galt: It’s Go to Texas:
As I have noted before, the Laffer Curve–the curve that relates tax revenues to tax rates–must be correct. The relevant question is where we are on the Laffer Curve. Are we on the part of the curve–the “prohibitive region”–where an increase in marginal tax rates will reduce revenues and a decrease in marginal tax rates will increase revenues? For the United States, I think the answer is pretty clearly no.
But what about for California? We are about to have an empirical test.
The Laffer Curve is the idea that there is a revenue maximizing tax rate. It’s not zero, and it’s not 100%, because people would do very little that would result in a 100% tax. The maximum rate is different for different taxes — a gross receipts tax would have a lower revenue-maximizing rate than an income tax because it would not have deductions, for example. Mr. Henderson says that’s also true for state income taxes:
When state governments increase tax rates, people in those states have a relevant option that is not relevant to a discussion of increases in federal tax rates. Specifically, they can move to one of the other 49 states. So a simple estimate of the elasticity of taxable income with respect to marginal tax rates will underestimate the actual elasticity. Some of those other states with lower marginal tax rates on high-income–and that includes virtually all the other states–will be attractive substitutes. Texas, for example, has no income tax. Neither do Washington, Florida, and Nevada, to name just 3 others.
That could cause the tax take for California from its new tax increases to be much less than they are hoping for:
Notice one powerful implication of this second reason that makes the analysis quite different from the analysis for federal tax-rate increases. Whereas when the federal government raises tax rates, any loss in revenue is due mainly to people cutting back on their income somewhat, when a state government raises marginal tax rates, people who move to another state cut the income that the state taxes to zero.
It’s not just a theoretical issue, as Russ Fox reports in Phoenix Woos California Businesses:
A hint to California: As you continue making the state more and more hostile to businesses, businesses are forced to react. No business wants to move (it’s expensive and disruptive), but like my business that moved last year, eventually the desert wastes of Las Vegas or Phoenix start looking really attractive.
The California weather’s nice, but not at any price.
And Ontario doesn’t even have the nice weather. The TaxProf, Tax Consequences of Florida Marlins – Toronto Blue Jays Trade.