Oh, there’s nothing like a good brouhaha to stir up a presidential election. If you’re a fan of political mudslinging, grandstanding rhetoric and muckraking media, you must be thoroughly enjoying this pre-election season.
A big part of the presidential campaign platforms is tax reform at both the personal and business level. Tax changes present an opportunity to stimulate the economy, lower–or raise–the nation’s deficit, and promote job growth.
There’s tons of analysis of the Democratic and GOP plans on both sides. However, ambiguity over exactly what deductions and credits would be changed or eliminated creates a wide net of speculation about which plan would benefit whom–and which would be best overall for the country. To summarize:
President Obama’s tax plan:
- Extend the Bush tax cuts only for taxpayers earning less than $250,000 each year
- Increase the number of tax brackets from five to seven tiers
- Extend the reduced payroll tax scheduled to expire this year.
- Raise the tax on long-term capital gains and qualified dividends to 20 percent
- Retain the additional 3.8 percent Medicare cap gains tax for taxpayers earning more than $250,000
- Impose a 28 percent cap on the total amount of itemized deductions across all tax brackets
Mitt Romney’s tax plan:
- Reduce individual income tax rates by 20 percent for all tax brackets
- Increase the number of tax brackets from five to six
- Eliminate tax breaks, incentives and “special interest” loopholes
- Repeal the alternative minimum income tax
- Eliminate capital gains, dividend, and interest taxes on investments owned by taxpayers who earn less than $200,000
- Impose a long-term tax rate of 15 percent on investments for higher-income investors
- Repeal the additional 3.8 percent Medicare tax on capital gains
For more detailed analysis of the two candidate’s tax reform plans, check out the links below.
[CLICK HERE to read the article, “Obama vs. Romney: Key Differences in Taxes, Regulation,” at AdvisorOne.com, September 12, 2012.]
[CLICK HERE to read Mitt Romney’s plan for jobs and economic growth, “Believe in America,” at MittRomney.com, 2011.]
[CLICK HERE to read the President’s Budget for Fiscal Year 2013 at WhiteHouse.gov, February 13, 2012.]
[CLICK HERE to read the white paper, “On Distributional Effects of Base-Broadening Income Tax Reform,” at the Tax Policy Center, August 1, 2012.]
As for corporate taxes, both candidates favor reducing the tax rate to help America become more globally competitive. Romney would like to reduce the current 35 percent rate to 25 percent and change to a “territorial” payment system, extend the write-off of capital expenditures for an additional year, lower the payroll tax, and create a robust investment tax credit.
Obama supports our current “worldwide” tax system (we’re the only developed country to still use this system, wherein multi-national companies pay taxes in their host countries and the balance of the U.S. tax they would owe had those revenues originated here). However, he proposes reducing the corporate tax rate from 35 percent to 28 percent for all industries except manufacturing (25 percent).
[CLICK HERE to view the Fox news video report, “Scott Hodge on America’s High Corporate Taxes,” at YouTube.com, September 10, 2012.]
[CLICK HERE to read the White House report, “The President’s Framework for Business Tax Reform,” at Treasury.gov, February 2012.]
Regardless of who wins the presidential election, any real attempt at tax reform in the next year or two would be a tremendous undertaking given our current slow moving economy, stalled employment, and budget deficits–not to mention the likelihood that Congress will remain divided. As always, we recommend you regularly revisit your portfolio and insurance products to see if there are ways to be more tax efficient.
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Source: Woods Blog Old