Presidential Hopeful Tax Plans: President Obama

UPDATED: September 13, 2011 with additional details!

Following up on previous posts regarding the tax plans of Presidential hopefuls, here are the tax highlights of President Obama’s plan.

On Thursday, President Obama laid out his plan to create jobs which he calls “The American Jobs Act.” 

The following are some tax highlights from that Plan.  

1. Payroll Taxes
   1. Employee side: reduce the Employee share of payroll taxes from 4.2% (formally 6.2%) to 3.1%. 
   2. Employer side: reduce the Employer share of payroll taxes from 6.2% to 3.1% on the business’s first $5 million in payroll. 
   3. Employer side: For new hires or increased wages, provide a payroll tax credit to fully offset the employer's share on the increased payroll (capped at first $50 million in payroll increases).
2. Deductions
   1. Extend the 100% expensing deduction into 2012.
   2. Limit the ability of "high-income taxpayers" to take deductions to a maximum benefit of 28%.  This means, that if a taxpayer has taxable income in the 39.6% bracket, then the deduction will be limited to 28%.  This applies to married couples making over $250,000.00  and for singles making over $200,000.00.  This provision will affect itemized deductions and “certain other tax expenditures.”
3. Misc.
   
   1. Unemployed Veterans: Provide tax credits from $5,600.00 to $9,600.00 to encourage hiring of unemployed veterans. 
   2. Long-term unemployed: Provide a $4,000 tax credit to employers that hire long-term unemployed workers.
   3. Tax Carried Interest in Investment Partnerships as Ordinary Income.
   4. Close Loophole for Corporate Jet Depreciation.
   5. Disallow a number of deductions for oil and gas industry.
   6. Increase deficit target of Super-Committee to $1.95 Trillion (from $1.5 Trillion).  
   
   
   

In his speech, the President called on Congress to pass the American Jobs Act in order to jumpstart recovery, whether or not Congress will pass the Act, or any portion of it, remains to be seen. 

More info on President Obama's plan can be found here.
The Text of the bill can be found here. 
A nice summary of the bill can be found here. 

Other presidential hopeful tax plans: John Huntsman

Update on Wednesday, January 25, 2012 at 9:05AM by Jess Monnette

In his January 24th, 2012 State of the Union address, President Obama proposed what is in effect a 30% AMT on all households that make more than $1M per year. 

Learn more at the President's "America Built to Last Blueprint."

Payroll Tax & Social Security: troubling numbers...

Payroll tax: in numbers

Social Security is paid for in the payroll tax.  The payroll tax is paid as follows:

• 6.2% of wages Social Security (employer’s share)
• 4.2% of wages Social Security (employee’s share, 2010: 6.2%)
• 1.45% of wages Medicare (employer’s share)
• 1.45% of wages Medicare (employee’s share) 

Total Tax on wages:  13.3% in (2011), 15.3% in 2010. 

Social Security: in numbers

Social Security’s first recipient: paid in $44 in social security taxes received back $20,993.00. 

Number of workers supporting each retiree in 1950: 16

Number of workers supporting each retiree today: 3 (just over), only 1.75 full time private sector workers.

Number of workers supporting each retiree by 2030: 2

Number of times social security taxes have been raised: 40

Initial Social Security tax: 2% for a maximum tax of $60.00 per year. 

2010’s Social Security tax: 12.4% for a maximum tax of $13,234. 

Unfunded future liabilities: $20 Trillion

Much of this data comes from an article by Michael Tanner. 

No matter how you slice it, American wage earners have been paying an increasing premium to continue the Social Security program and will necessarily pay a further increased premium to support the program in the future.  Fundamental changes in the system are necessary right now to meet future unfunded liabilities and obligations. 

What happens if your company refuses to pay over withheld payroll taxes?

The Department of Justice recently filed a lawsuit against a construction company and its principal for continued failure to pay over to the IRS withheld employee payroll taxes.  The US is seeking a civil injunction to require that Defendants comply with the laws, prohibit Defendants from making payments to other creditors with withheld employee’s funds, and require that Defendants file monthly reports with the IRS. 

This injunction comes after years of failing to pay over withheld payroll taxes and failure to voluntarily comply with IRS administrative collection.  The moral of this story is twofold.  First, if a Taxpayer fails to voluntarily comply, the IRS will pursue its remedies to obtain a judicially enforced compliance.   Second, withheld payroll taxes (and other taxes) must be timely paid over to the IRS to avoid the steep escalation of accrued penalties and interest. 

Payroll outsourcing? You are still responsible!

Do you outsource your business’s payroll?

Many business owners choose to outsource payroll related tax duties to third party payroll service providers.  The IRS provides the following advice on Outsourcing Payroll Duties:

• If the employer uses a third party payroll service provider, the employer remains ultimately responsible for his business’s deposit and federal tax payment responsibilities.  Therefore, the employer is liable for all taxes, penalties and interest due and may be held personally liable for his company’s unpaid taxes even if the third-party is at fault for not making timely payments. 
• The IRS recommends that the employer’s address be used (as opposed to the payroll service provider’s address) as the business’s address of record to insure that the employer is timely made aware of any issues with the account. 
• The IRS recommends that employers verify that the payroll service provider is using the Electronic Federal Tax Payment System (EFTPS) so that the employer can immediately confirm online that his business’s payments are timely made.   

Therefore, every employer must remember that they are the party ultimately responsible for their business’s tax payment (and withholding) obligations. 

2010 Federal Revenue Sources: a surprising amount came from payroll taxes.

According to the Office of Management and Budget, Fiscal Year 2010 Federal Revenues break down as follows.  The graph is courtesy of factcheck.org.  These numbers can be found on Table 2.1 at the OMB. 

Of particular note is the fact that Payroll Taxes (which are paid by employers and employees) brought in as much revenue (40.0%) as Individual Income Taxes (41.5%).  Corporate Income taxes brought in 8.9% and the Estate & Gift tax brought in 0.9% (it is part of the "other" category).  By way of contrast, in 2000, the Individual Income Taxes brought in 50% and Payroll Taxes brought in 32%.  See Table 2.1. 

Listen carefully to the upcoming tax debates in Congress and see how many times Payroll taxes are discussed.  Even though Payroll Taxes tie as the single largest revenue producer for the Federal government, chances are low that meaningful discussion or reform will occur.