Congress Gets Back to Work
Congress returns from its summer vacation tomorrow and has a lot on its plate. Health care reform will take most of Congress’ time.
Wholesale tax reform is off the table until, my guess is, 2012. We can look for tax increases to be included in a health care bill, however. Whose ox gets gored will depend on the scope of the legislation. Upper income taxpayers, for sure; middle income taxpayers remain a target; small businesses very likely.
In all likelihood, the estate tax will be extended in its present form. Congress will simply not allow this tax to disappear in 2010. The question is, for how long will the present provisions ($3.5 million exemption and a 45% maximum rate) be extended? One school of thought is that they will be extended for only one year and allowed to revert to the 2006 levels of $1 million exemption and a 50% maximum rate in 2011. The proposed carryover of a decedent’s unused exemption to a surviving spouse is likely dead this year. The bigger question is whether valuation discounts will be addressed this year, and if so, the effective date. The use of family limited partnerships for discount purposes remains an effective tax-planning tool for now but it could be significantly impaired before the end of the year.
The alternative minimum tax will be patched again and other tax incentives expiring after 2009 will probably be extended for one year. Some incentives, such as the $250,000 business equipment expensing election and bonus first-year depreciation, may be allowed to fall to lower levels in 2010 as presently scheduled. With the Bush-era tax cuts being sunset after 2010, Congress may well effect an overall tax increase in 2011 by simply allowing them to expire.
With the housing market showing signs of rebounding, the first-time home buyers credit may not be extended beyond its current expiration date of November 30, 2009. In question, too, is the special deduction for sales taxes paid on new automobiles purchased in 2009. Qualified charitable distributions from IRAs are scheduled to end after 2009.
Bottom line is that federal tax federal legislation passed during the next few months will be interesting, but not revolutionary. The key will be in the health care package. Next year may be more important. I’ll keep you posted.
Ronnie
Copyright 2009, Ronnie C. McClure, PhD, CPA