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National Debt

01/15/2016

Tax Extenders & The Deficit Dilemma

Though Congress has received some applause for reviving a set of more than 50 tax breaks, called “tax extenders,” there is as much dismay-driven head shaking over the fact that the bipartisan agreement and the now signed budget bill dig the federal deficit hole even deeper.

The new tax law, entitled the Protecting Americans from Tax Hikes (PATH) Act of 2015, and the newly signed funding bill provide $1.1 trillion to cover spending for most government agencies to the end of fiscal year 2016, perhaps coincidentally past the upcoming presidential election. The defense sector, NASA, the Food and Drug Administration and the National Institutes of Health received a bit of a boost with most other agency funding remaining flat. ENews 2016 pic tax-credit3

IRS funding restrictions remain, so it’s expected that taxpayers will continue experiencing communication and customer service problems and an increase in computer-generated correspondence audits throughout 2016 and 2017. The new National Taxpayer Advocate Annual Report to Congress blasts the IRS for planning to “substantially reduce telephone and face-to-face interaction with taxpayers,” turning that job over to tax return preparers and tax software companies.

Meanwhile, the good news for taxpayers is that the PATH Act makes permanent several charitable tax provisions, indicating that lawmakers support using tax incentives to encourage charitable giving. For example, those 70 ½ or older may contribute up to $100,000 from an IRA directly to a charity with the contribution qualifying for their required minimum distribution (also known as Qualified Charitable Distribution (QCD) rules).

Other permanently renewed tax provisions include the American Opportunity Tax Credit for college expenses and the deduction for state and local sales taxes. The schoolteacher expense deduction has been enhanced and made permanent, as has the child tax credit.

The mortgage insurance premiums and qualified residence interest deductions have been extended for another year. Taxpayers who suffered losses from selling their home for less than the outstanding mortgage will also be able to avoid the tax consequences from debt cancellation under the Mortgage Debt Relief Act for another year.

Companies that utilize bonus depreciation like those involved in the telecommunications industry or who invest in capital-intensive projects will continue enjoying this helpful tax provision for a few more years. The tax law also makes permanent the research and development tax credit, which encourages important business R&D like that in the pharmaceutical and defense sectors.

The solar investment tax credit (ITC) and the wind production tax credit (PTC) are being phased out but will remain active through 2019 and 2021 respectively. The energy industry overall has received both tax incentives and funding resources, adding a boost of confidence to alternative energy producers.

Tax increases levied on individuals and businesses to pay for the Affordable Care Act (Obamacare) continue to be unpopular, and some were not enacted. Now it’s possible the two most controversial taxes may be repealed. These are the proposed tax on medical devices and the 40% excise “Cadillac” taxes on higher-priced employer-sponsored health plans that compete with government-sponsored plans.

The 2015 year-end budget battle, which starts our new tax year without delays, was a fistfight compared to the combative, destructive delay-causing 2014 debate. Yet, even as lawmakers are cooling to budget debates, the looming budget deficit has not disappeared and continues to grow. Our 2016 budget will add to the deficit, rather than reduce it. The Congressional Budget Office reports that overall US Treasury debt has grown to 74% of GDP that “could have serious negative consequences for the nation, including restraining economic growth in the long term ... and eventually increasing the risk of financial crisis.”

Overall, the bipartisan tax bill was passed with the understanding that Congress is committed to comprehensive tax reform that will simplify the tax code, eliminate temporary provisions and lower tax rates by broadening the tax base. Lawmakers who supported the PATH Act stated in a news release, “Americans deserve a simpler, fairer and flatter tax code that’s built for growth, and this bill will help make that possible.” The 2016 election year will likely determine how far that ship will sail.

If you have any questions about how the current tax law affects your individual and/or business tax obligation, please contact us now at McRuer CPAs for a tax planning session.

04/07/2015

Social Security Disability In Trouble

Officials report the Social Security Disability Insurance (SSDI) program is in trouble financially and in less than two years is expected to not be able to pay full benefits.

Social-security-disabilitySSDI provides supplemental income to the mentally or physically disabled who cannot work full-time.  The Social Security Administration reports that more than 11 million Americans receive SSDI payments each year.

The SSDI has petitioned lawmakers to access funds in the broader, less financially stressed Social Security retirement program until its own funding deficit can be solved.

It’s not surprising that positions about this issue divide along party lines. Republicans want the SSDI to fix its underlying costly administration structure that drains funds, which could otherwise be paid as benefits.  They also want to change eligibility requirements to limit benefit payments to those who are most needy. 

Democrats claim the Republicans had already targeted SSDI for budget cuts and are using the current fiscal crisis as a way to cut benefits overall creating "a crisis where none exists.”  They say Republicans are refusing for political reasons to accept a proposal supported by President Obama that they claim could fix the problem.  A number of Democrats are pushing for increases in both disability and social security retirement benefits.

Financial and political analysts agree the issue will be a major debate topic and will be one of the first action items the next President must address in early 2016.

The health of the larger Social Security retirement fund remains unclear.  Annual reports predict the fund will be depleted by 2033.  The Heritage Foundation confirms the cash-flow deficit began in 2010 when $51 billion in benefits were paid above what was received in payroll taxes, and numbers show the deficit is getting worse each year.  An effort to reallocate funds from one resource to another is considered a temporary fix.  At the present payment rate all reserve funds may dry up in 20 years.

Some proposed solutions include increasing the Social Security tax from 6.2% to 7% of earnings, changing the cost-of-living adjustment, enacting a means test that would reduce or eliminate social security for retirees with higher incomes, and raising the retirement age to 68.

If you have questions about how your retirement plans may be affected by Social Security funding issues, contact McRuer CPAs for a review of your strategies and goals.

10/31/2012

Postal Service Must Sink or Swim

As of mid-October, the United States Postal Service has reached its $15 billion borrowing limit for the first time ever, according to Kim Dixon of Reuters. Because it operates as an independent agency of the government, it relies solely on the sales of stamps and products such as envelopes and greeting cards.

Postal-service


So like the rest of the world, it’s either sell more goods or reduce staff and costs. Innovate or perish.

An April 30 article in the Economist, You’ve Got No Mail, summarizes that the postal service has been hit hard by the recession and popularity of email over standard mail, but there are no bailout plans for the postal service.

Phil DiNuzzo said on the Quora site that is highly unlikely that the United States Postal Service would shut down in the medium-term. “There are a variety of ways that agency can cut costs or increase revenue, including raising the cost of delivery, charging a surcharge for direct mail advertising, eliminating mail delivery days and reducing mail pickup frequency,” said DiNuzzo.

10/29/2012

Tax Payers Pay Twice for Solyndra’s Financial Collapse

The Wall Street Journal reported in its Solyndra Memorial Tax Break article October 15 that one of President Obama’s 2008 billionaire campaign donors is trying to sidestep a federal tax bill amounting to hundreds of millions of dollars.

2012-09-07T192007Z_1_CBRE8861HPO00_RTROPTP_3_BUSINESS-US-SOLYNDRA-BANKRUPTCY-HEARING_JPG_475x310_q85

Under Solyndra’s bankruptcy plan, taxpayers will recoup $27 million at most on Obama’s $535 million in tax payer dollars lent to Solyndra in the government’s 2011 bailout effort.

Solyndra has formed two companies, Argonaut Ventures and Madrone Partners, as holding companies that won’t make products or employ workers, but will get the Solyndra tax offsets.

 

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