Thursday, January 17, 2013


On January 9, 1984 a Wendy’s TV commercial first aired touting their hamburgers as having more meat than similar competitor’s burger. Three elderly ladies stand at the pickup window of one of the competitors looking at a very large hamburger. The first lady keeps saying over and over “It certainly is a big bun.” They remove the top half of the bun to disclose a very small meat patty. Finally the shortest member of the group, a woman who could barely see over the counter, asks, “Where’s the beef?” I think we should ask Congress, “Where’s the relief?”

I don’t see how they can call a piece of legislation, “The American Tax Relief Act of 2012” (ATRA) when the Act did not extend the 2% payroll tax reduction allowing the rate to increase back to its previous level of 6.2% of wages. By not sustaining the reduced rate they have in fact increased the taxes of every working American by 2%.

Pork Provisions

It has been estimated that ATRA includes some $70 billion in “Pork Barrel” spending. Congress’s addiction to pork has given us both new and increased deductions that will add to the deficit instead of reducing it. Some of my favorites include:

• Increased rebate amounts to Puerto Rico and the Virgin Islands of a tax on rum imported into the US. Estimated costs $222 million.

• Quicker write off of improvements by motorsport race tracks (NASCAR). Estimate costs $78 million.

• Tax breaks for TV and movie producers that allow them to more quickly write off expenses. Estimated costs $248 million.

• Tax credits of up to $2,500 for purchasing electric powered motorcycles. Estimated costs $7 million.

Here are some of the more significant provisions included in the bill:

Alternative Minimum Tax

Probably one of the better things included in the legislation was to make permanent the Alternative Minimum Tax (AMT) threshold and indexing it to inflation. The new threshold amount is $78,750 and $50,600 for married and single respectively.

Capital Gains and Dividends

The current maximum tax rate of 15% on net capital gains was extended permanently at 15% except for individuals earning $450K for married filing jointly and $400K for aingle filers. For these individual the rate increases to 20%.

Estate, Gift and Generation-skipping Tax

The tax exemption for the estate, gift, and generation-skipping tax was permanently extended at $5 million per person and indexed to inflation; however, the top rate was increased to 40%.

Individual Income Tax Rates

Current individual income tax rates (10% - 35%) were permanently extended, except for those individuals making $400K or more and married joint filers making $450K or more. For these taxpayers the top tax rate is increased to 39.6% .

Personal Exemption and Itemized Deductions Limitations

The personal exemption phase-out and the itemized deductions phase-out were repealed by the Act except for taxpayers with adjusted gross income of $300K for married filing jointly, $275K for head of household, and $250K for single.

It appears that ATRA has at least put a Band Aid on the budget but has done nothing to address the long term issue of deficit spending. By trying to ignore the problem they have been successful in taking a set of complex rules and regulations (Internal Revenue Code) and made them almost incomprehensible.

What do you think?

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