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A Bit of Research…

September 15, 2008

Ok , so since this is election season I hope you all don’t mind the nature of some of my posts.  I know that there is so much out there that are stretched truths and out right lies….

So I figure (if you, dear reader, are so inclined) that I would just post what I find. I’ll keep these as seperate posts so if you see the title then just know that there won’t be anything off topic in the posting. I’ll keep “life” posts all by themselves.

So today I decided that I would just start at the top with taxes (since that hits my pocket the most).

From Tax Policy Center: This was last updated June 10, 2008

New Tax Cuts Refundable Making Work Pay tax credit of 6.2 percent of earnings up to a maximum of $8,100

Refundable Universal Mortgage Credit of 10 percent or mortgage interest for nonitemizers, capped at $800 ($8,000 of interest)

Eliminate income tax for senior making less than $50,000 per year

First-time buyers tax credit for new farmers

Small Business and Microenterprise Initiative tax credit of 20 percent on up to $50,000 of investment in small owner-operated businesses

Allow first-year deduction of 3 and 5-year equipment, deny interest deductions (expires)

Reduce maximum corporate tax rate from 35 to 25 percent

Increase the dependent exemption by 70 percent

Suspend the federal gas tax (18.4 cents per gallon from this Memorial Day until Labor Day

Adjustments to Existing Credits Make R&D and renewable enery production tax credit (wind, solar) permanent

Extend childless EITC phase-in range and increase phaseout threshold, double the phase-in and phase-out rates for childless individuals paying child support, increase EITC phase-in rate to 45 percent for families with three or more children; increase add-on to EITC phase-out threshold for married filers to $5,000

Make CDCTC refundable and allow low-income families to receive up to a 50 percent credit for child care expenses

Make saver’s credit refundable and change to a 50 percent match of the first $1,000 of savings, phases out beginning before $75,000

Increase Hope credit 100% match rate to $4,000 for college education and make refundable, rename American Opportunity Tax Credit

Mandate automatic 401(k)s and automatic IRAs

Convert R&D credit to 10 percent of wages incurred for R&D, make permanent
Capital Gains Increase maximum capital gains rate to 20 percent

Require information reporting of basis for gains

Eliminate capital gains taxation of start-up businesses and provide capital gains tax break for landowners selling to beginning family farmers

Keep the current rates on dividends and capital gains
Bush Tax Cuts Permanently extend marriage penalty relief, adoption credit expansions, 10,15,25, and 28% rates, EITC simplification

Restore 36 and 39.6% statutory income tax rates, Restore PEP and Pease phaseouts for households making more than $250,000, increase in PEP and Pease threshold

Make permanent all provisions other than the estate tax repeal
Alternative Minimum Tax Extend and index 2007 AMT patch Extend and index 2007 AMT patch, further increase exemption by 5 percent in excess of inflation after 2013 (temporarily)
Estate Tax Make permanent estate tax with $3.5 million exemption and 45 percent rate Make permanent estate tax with $5 million exemption and 15 percent rate
Simplification Give taxpayers the option of pre -filled tax forms to verify, sign, return to IRS Give taxpayers the option of an alternative tax system with two rates and a larger standard deduction and personal exemption
Revenue Raisers and Tax Havens Eliminate oil and gas loopholes

Close loopholes in the corporate tax deductibility of CEO pay

Tax carried interest as ordinary, Increase the highest bracket for capital gains and dividends

Reallocate multinational tax deductions

Codify economic substance doctrine

Create international tax haven watch list

Other unspecified revenue raising provisions

Eliminate oil and gas loopholes

Unspecified corporate base broadeners

Eliminate earmarked projects from the budget, freeze nonmilitary discretionary spending for one year, eliminate programs

Health Income-related federal tax subsidies for health insurance Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families
Other Social Security/payroll taxes: impose additional tax of 2-4 percent (combined employer and employee) on workers with income above $200,000 ($250,000 for married couples) Require a 3/5 majority vote in Congress to raise taxes

Ban internet and cell phone taxes

Higher premiums for Medicare prescription drug coverage for single people earning more than $82,000 and couples earning more than $164,000

Ok, so looking at this chart there are a few questions I have.  I’ll start with the first column and then move to the second. I will bold out the questions I have so that they are easier to find and should you, Reader, choose to share info- it will be easier to find through my babble.

  1. Under Tax Cuts is the notation that says: “Eliminate income tax for senior making less than $50,000 per year“.  Now it is my understanding (which could be wrong) that when it comes down to the numbers, those making less than 45,000 pay very little (if any)tax anyway. For seniors like my Grandmother who work and have other investments- would that mean the first 50k of her income is non-taxable? We (as a family) own a very large building in Brooklyn (which as a side note has made appearances in both “Ghost” with Patrick Swayze and most recently the Denzel Washington film “American Gangster). We have divided it into sections and lease space to stores and entertainment. It does bring in some money BUT we also put most of what is left after taxes back into the building.  Because of this ownership- my grandma makes over 250,000 pre-taxes.  Her work brings in less than 50K.  Profits are slim when you take out not only federal taxes but also state taxes:which include property taxes (which are quite substancial) in New York City.  If she is taxed as a business owner/landlord in NYC then to make enough to pay the taxes she would have to raise the rent.  Should she have to do that then our tenents would have to raise the prices of their goods.  This is complicated and if anyone can break it down and explain to me how this proposal is supposed to work then I’d be more than grateful. This building will be willed to me should anything happen to my Grandma (God-forbid) and I am already starting to get into the business side of things so that I can manage from a distance.  I need to understand.  Dang that was long huh?
  2. Under the same heading is “Small Business and Microenterprise Initiative tax credit of 20 percent on up to $50,000 of investment in small owner-operated businesses”.  I think that this point is very good but looking at the policy as a whole it does raise some questions in my mind.  Mainly this: While it is great that family businesses will get a 20% credit- if that business is moderately successful, by which I mean they provide goods and services to the community they are in while also creating jobs the larger the business becomes, won’t their taxes then go up once they reach the 250K barrier?  Wouldn’t that make the credit null and void? Essesntially fluff that creates a more complex tax system’?
  3. Ok… SOMEBODY out there is gonna have to dumb this down for me because I just am not understanding.  It is seeming like there is a whole lot of money being proposed to be given as credit.  I don’t quite understand the “phase-in, phase-out” and how that applies to the childless (since that is where we are, and though we file jointly and live on one income we have barely made the threshold. “Extend childless EITC phase-in range and increase phaseout threshold, double the phase-in and phase-out rates for childless individuals paying child support, increase EITC phase-in rate to 45 percent for families with three or more children; increase add-on to EITC phase-out threshold for married filers to $5,000
  4. Make CDCTC refundable and allow low-income families to receive up to a 50 percent credit for child care expenses” I am wondering why this is only offered to low-income families?  Is there tax policy that provides similar provision for those making over the proposed 250k threshold already in effect?

Wow, since that is quite a bit I think I am gonna cut it off here (and I need to go do laundry) and then get back to first column questions as soon as I can.

Any discussion will be apprciated– especially those who can answer the questions and expand on the answers so that it is understandable.

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2 Comments leave one →
  1. September 15, 2008 12:08 pm

    It’s awesome that you are hashing out what you think with all of us. Love it.

    Found this great website too on Calliope’s page:
    http://factcheck.org/

  2. September 15, 2008 12:43 pm

    I will do my best to answer some of your questions as I attempt to practice tax law for a living. You are right that those who make less than $45K do pay little of their income as a percentage in taxes. It does depend on the source of the income- whether it is earnings or profits/capital gains. There is the additional factor that the first $32,000 of Social Security income is not taxed (this may or may not affect your grandmother). Even if your grandma is bringing in 250K that may not all be categorized as taxable income because her losses (taxes, depreciation, etc.) would all need to be factored in.

    As for the small business investment credit, that would not go to the small businesses but actually to those who invest money in them. For example, if you are a SBA owner and I invest 50K in your company, I could get a credit against my income taxes. The business owner doesn’t get any of the tax credit, so that 250K threshold is really not an issue as it relates to this proposed credit.

    As far as extending the phase-in and increasing the phase-out of the EITC, I believe that increasing the phase-out threshold results in increasing the amount of income that can be earned and still receive it. Raising the phase-in would ostensibly make the amount of income for childless couples be higher in order to qualify. You may have other issues to the extent that military or combat pay is treated as income. You might find the irs website helpful (although I often don’t). Some EITC info can be found at http://www.irs.gov/individuals/article/0,,id=150513,00.html

    The child care credit is not available to those with income above 250K (for married joint filers). I assume the tax policy is that those with that income do not need the govt subsidy provided by the credit.

    I hope that this is a bit helpful.

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