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| Home Front: Politix |
| Taxorama: 7 changes on the docket |
| 2010-01-14 |
| Fine. Tax their bonuses. They'll just double them. And people won't even know that their returns have been reduced. Oh well. Stupid peasants. Everybody's angry at banks. Federal deficits are wide and need addressing. And the president and Congress are starting to map out next year's budget. That means they're talking taxes in Washington. The capital is awash in proposals for how to raise revenue and score political points. There's no guarantee all of them - or even some - will pass. But they are an indication of the direction the White House and Congress may go as they finalize decisions for how to pay for health reform, reduce debt, support other government efforts and garner votes in a mid-term election year. President Obama on Thursday is expected to recommend that Congress recoup any federal bailout money that hasn't been repaid within five years by imposing a tax or fee on large banks, even if they themselves haven't taken bailout money or repay the bailout money they did take. Treasury Secretary Timothy Geithner has said the government expects to bear losses on the bailout money given to American International Group (AIG, Fortune 500), GM and Chrysler. "This is as much a political statement as it is a tax policy statement," said Mel Schwarz, director of tax legislative affairs at Grant Thornton LLP. Selectively taxing banks could have some legs, but Concept Capital's Washington Research Group puts the odds of its passage at less than 50%, said director of research Anne Mathias. The populist fury unleashed when bonuses were paid to AIG executives is back. This time it's during bonus season on Wall Street, where investment banks are expected to distribute tens of billions of dollars to reward their employees for the banks' 2009 performance. House Financial Services Chairman Barney Frank, D-Mass., will hold a hearing on Wall Street compensation next week. On the agenda will be consideration of bonus taxation, as well as President Obama's proposal to tax banks to make up for any bailout money that isn't repaid. Frank's committee doesn't write tax law. That's up to the House Ways and Means and the Senate Finance committees. But he is beating the drums for change. "I think compensation has gotten excessive," Frank said in a statement. "I want to underline what we are already doing. Frankly, in the hope that maybe the Senate will be even more inclined to [act]." So don't be surprised if talk of a banker bonus tax is revived. But it's not clear how viable it would be. "That's more politics than policy," Schwarz said. Lawmakers may effectively raise taxes on income earned by managers of hedge funds and private-equity funds. Typically the managers are paid a portion of the profits earned by their funds, but they only need to pay capital gains tax on those profits. A proposal before the House would instead subject the profits to ordinary income tax rates, which are higher. Mathias thinks the proposal might pass, but not before the mid-term elections in November. Schwarz thinks the issue will be debated but not necessarily passed this year. "It's not a slam-dunk." Bills in the House and Senate propose a new excise tax on financial firms for their securities transactions, such as in stocks, futures, swaps and options. If passed, it could be used to help fund deficit reduction and legislative efforts to create jobs. "It's very much on the table," Schwarz said. But, he added, "I'd be surprised to see it pass this year." Between now and early February, when the president will present his 2011 budget proposal to Congress, there will be a lot of guessing as to just what tax proposals will be included. On Wednesday, Congress Daily reported that the administration might seek a one- to two-year extension to the 2001 and 2003 tax cuts, set to expire on Dec. 31. If that's the case, it would be a switch from the administration's earlier call to permanently extend the cuts for everyone except those making more than $200,000 ($250,000 for couples filing jointly). Mathias doesn't think extending the tax cuts temporarily for upper income households will fly. As for everyone else's tax cuts, a temporary extension is very likely since permanently extending them is a tough sell in a deficit-conscious environment. Over 10 years, it would cost roughly $2 trillion in forgone tax revenue. But calling for a one- or two-year extension could make the proposition seem much less expensive than it really is. That's because lawmakers may just decide to keep extending them temporarily, Mathias and Schwarz said. As proof, they point to the many "temporary" fixes for the Alternative Minimum Tax that Congress has passed over the years. Lawmakers are considering ways to boost how much high-income people pay in Medicare tax to help pay for health reform. In the Senate health bill, one provision would raise Medicare taxes on income over $200,000 ($250,000 for couples). Currently, the Medicare payroll tax is 2.9% on all wages - with the worker and his employer each paying 1.45%. Under the Senate bill, these high-income workers would pay 2.35%. In addition, they may expand the reach of the Medicare tax, which currently only applies to wages and salaries. Under consideration: subjecting unearned income such as dividends to the Medicare tax as well. Currently, a U.S.-based company doesn't need to pay income tax on its foreign subsidiaries' profits unless and until the money is brought back to U.S. shores. One idea under consideration is to eliminate the deferral option so companies have to pay tax on their overseas profits even if the money stays offshore. Another is to lower the corporate income tax rate for foreign earnings to entice companies to repatriate the money. That happened once before on a temporary basis. Going forward, Schwarz said, having another temporary incentive to repatriate could be tempting if lawmakers need to raise revenue over the short-term. Mathias believes some change to the repatriation rules could pass by the end of the year but not before the mid-term elections. Schwarz expects a debate could start this year but given everything else on Congress' plate, he doesn't think anything would pass in 2010.. |
| Posted by:gorb |
| #3 Makes perfect sense, BP. The worse-run banks have friends in high places and make hefty campaign contributions to them. |
| Posted by: Glenmore 2010-01-14 12:57 |
| #2 None this article makes sense. Except for perhaps taxing US companies' foreign income. But that only works if our economy is the most attractive option. |
| Posted by: gorb 2010-01-14 12:52 |
| #1 Does fining good banks to pay for the costs of keeping their worse run competitors in business make any sense to anyone else? |
| Posted by: Bright Pebbles 2010-01-14 12:19 |