I don’t get too concerned about proposed tax legislation until bills are introduced, debated, and actually get to a joint committee for resolution of differences. What we are hearing today is just rhetoric. Neither candidate will get all they are espousing now. A McCain presidency will have difficulty in maintaining low tax rates, particularly on dividends and capital gains, with both the House and Senate controlled by the Democrats. Whether McCain would have the votes to override a veto of higher tax legislation remains to be seen. Perhaps during the next eight weeks both candidates will put some flesh on the bones of their statements. Obama, to this point, has certainly been more specific than McCain.
Neither candidate specifically addressed transfer taxes (estate, gift, and generation-skipping) in their acceptance speeches. With the need for increased revenue, Congress will not repeal them. Something must be put in place before 2010 estate tax holiday. I believe we are most likely to see continuation of the transfer tax programs in much the same fashion as currently exists, with an individual transfer tax exemption ranging from $3.5 million to $5 million. Carryover of a deceased spouses’ exemption amount to a surviving spouse may be appropriate, but will likely add additional complexity to the Internal Revenue Code, rather than reduce it. Use of a testamentary trust at the first spouses’ death will continue to be appropriate for non-tax reasons, even if not necessary to utilize that spouse’s transfer tax credit. The gift and estate transfer tax exemptions should be re-integrated to a single lifetime exemption as they were before the 2001 tax law changes.
Both candidates will monkey with corporate taxation. Obama will close “loopholes” and likely try to raise the rates. McCain espouses lowering them in order for U.S. corporations to be more competitive worldwide. Obama must realize that a “loophole” is tax “incentive” enacted by Congress to encourage economic behavior. Those incentives become loopholes only when a given taxpayer is unable to take advantage of them. Closing loopholes simply ends economic behavior incentives previously thought to be desirable.
With regard to corporate taxes, both candidates must realize that corporations do not pay taxes; people pay taxes. Which people pay corporate taxes depends on the corporation’s ability to shift the burden of the levy. Very simplistically, a corporation has four alternatives for shifting its tax burden. If a corporation completely absorbs the tax, the burden is shifted to shareholders in the form of lower current or future dividends. The corporation may shift the burden to its customers or clients in the form of higher prices. Employees bear the corporate tax burden if the corporation maintains its revenue, dividends, and investments and cuts (or defers increases) in wages or employee benefits, or cuts jobs. A corporation’s only other alternative to shift the burden is to cut expenses (which are income to someone) and reduce investment in plant, equipment, research, and technology. In these taxing times the public should not be lulled into believing that a corporate tax increase will have no impact on an individual’s economic wellbeing.
The debate is on. It will certainly intensify after November 2 when a new administration is being formed. The year 2009 will be a year of tax law change. The only remaining question is, “Whose ox will get gored?”
Ronnie
© 2008 Ronnie C. McClure
