|April 5, 2010|
Tax Freedom Day is April 9
Tax Quote of the Week
Q. I understand that Congress is considering a so-called “flat” tax system. How would this work?
A. If Congress were to pass a “flat” tax, you’d simply pay a fixed percentage of your income, and you wouldn’t have to fill out any complicated forms, and there would be no loopholes for politically connected groups, and normal people would actually understand the tax laws, and giant talking broccoli stalks would come around and mow your lawn for free, because Congress is NOT going to pass a flat tax.
– Dave Barry
Tax Freedom Day is April 9
Each day the Tax Foundation reports the date when Americans have on average worked enough to cover taxes. For the year 2010, the 99th day, or April 9, will be Tax Freedom Day.
Tax Freedom Day this year is two weeks earlier when compared with 2007. This occurs for three principal reasons. First, the recession has reduced tax revenue. Second, there were temporary tax cuts for 2009 and 2010. Third, in 2010 the partial loss of itemized deductions and the exemption phase out for higher-income taxpayers are both eliminated. In addition, there is at present no estate tax.
However, if the $1.3 trillion deficit is considered, the picture changes substantially. If the government were to collect sufficient revenue to balance the budget, then Tax Freedom Day would be May 17, 2010.
While the $1.3 trillion budget deficit is financed, taxpayers will either be required to pay interest on that amount or eventually will pay off that debt. With the deficit considered, Tax Freedom Day would be the latest since World War II.
Healthcare Reconciliation Bill Signed
The Healthcare and Education Reconciliation Act of 2010 (H.R. 4872) was signed by President Obama on March 30, 2010. Under the House and Senate rules, it was necessary to pass an additional bill to modify the prior healthcare bill. The reconciliation bill delayed the 40% excise tax on plans for single persons with taxable income over $10,200 or families over $27,500 until the year 2018. The 3.8% income tax on unearned income (dividends, royalties, annuities and interest) for upper income persons will take effect in 2013. A 2.3% tax on medical devices was also included in the bill.
House Chair of the Ways and Means Committee Sander Levin (D-MI) was clearly pleased with the bill. He stated, “The landmark health reforms set forth under this law will put more money back in seniors’ pockets as we close the Medicare prescription drug donut hole faster, will limit the scope of the excise tax on high-cost health insurance plans to protect middle-class families and will expand access to high-quality, affordable care to millions of additional families.”
The bill did produce a different response from 13 state attorneys general. The 12 Republicans and 1 Democrat filed federal lawsuits challenging the constitutionality of healthcare reform. The attorneys general claim that requiring individuals to purchase a product is an unconstitutional expansion of the U.S. Constitution’s commerce clause.
Several companies also were forced under the accounting disclosure rules to immediately take a charge against profits. In 2006, Congress passed a prescription drug benefit known as Medicare Part D. To encourage companies to continue offering prescription drug benefits to retirees, Congress provided a tax-free 28% payment for the prescription drug benefit from $250 to $5,000 per retiree. This subsidy was also deductible by the companies.
The reconciliation bill made this corporate drug benefit no longer deductible. Caterpillar immediately reduced profits by $100 million, and Verizon charged $970 million against profits for the lost deduction.
Congress plans to hold hearings on the charges by these companies. Rep. Henry Waxman (D-CA) sent a letter to four companies and requested their presence at a hearing on April 21, 2010 to explain why they took the immediate charge against earnings.
Baucus Predicts IRA Rollover “Soon”
The Senate this week rejected a bill to extend unemployment insurance benefits and COBRA benefits for a month. In March, Sen. Max Baucus (D-MT) introduced the American Workers, State and Business Relief Act (H.R. 4213) and included in that bill an extension of the unemployment and COBRA benefits. The Senate passed this bill on March 10, 2010. It also included various tax extenders such as the IRA charitable rollover for 2010.
The House previously passed its extenders bill on December 9, 2009. However, the House and Senate bills had different provisions regarding tax offsets to pay for the extenders.
In the Senate debate on the 30-day extension Sen. Baucus stated, “These benefits are the only thing keeping food on the table for many folks in Montana and across the country who are struggling to find jobs and make ends meet. I implore my colleagues not to stand in the way of extending unemployment and COBRA insurance so hard-working American families and communities don’t lose the benefits they depend on for survival and we work to create jobs and pass a more permanent solution.”
Editor’s Note: The House and Senate are attempting to work together to produce a uniform bill. Sen. Baucus indicated that they are attempting “to merge the two bills and send legislation to President Obama soon.” The current challenge is coming to agreement on the tax offsets to pay for the tax extenders, the unemployment extension and COBRA benefits. When the bill passes, it will include the IRA charitable rollover, retroactive to January 1, 2010.