More Tax Increases On The Horizon?
By Steve Barlotta, CPA
A few weeks ago President Obama sent a proposed budget to Congress that includes more spending increases and $1.1 trillion in additional taxes. This tax increase is on top of $1 trillion in new taxes going into effect this year under Obamacare that we discussed in earlier blogs, and the $600 billion in tax increases from the expiration of the Bush tax cuts in January. This truly perplexes me because the President has said over and over again that he wants a balanced approach between spending cuts and tax increases to get our massive budget deficit under control. I have yet to see any proposals that falls under my definition of a spending decrease. Nonetheless, let’s take a look at some of the tax increases that may be coming down the pike.
$3 Million Limit On Tax-Preferred Retirement Accounts
President Obama has proposed a cap on tax-preferred retirement accounts which include traditional IRAs, Roth IRAs, 401(k) plans and defined contribution plans. An individual’s sum balance in all of these plans could not accumulate over $3 million. Apparently, the President has deemed that an individual does not need more than $3 million to adequately fund their retirement. Two thoughts here. Defined benefit plans would not be limited in any way under this proposal. First, a significant portion of federal workers are covered by generous government-defined benefit plans and pensions. Second, it looks like the President would be exempt from his own cap requirement, as well. It’s been estimated that Obama’s government pension would exceed $8 million. Do you think he’ll give back that extra $5 million? I can’t help but to see this proposal as a penalty on private industry that relies heavily on defined contribution plans.
28% Cap On Taxpayer Deductions
The President is also proposing that upper-income taxpayers have the value of their tax deductions reduced to 28% of their income. This would include itemized deductions like charitable contributions and mortgage interest, as well as other items like contributions to 401(k)s and other retirement plans. This limitation of deductions would start at the 33% tax bracket. This which would affect married taxpayers with at least $223,050 in taxable income and single taxpayers with at least $183,250 in taxable income.
30% Minimum Tax On Millionaires
The so called “Buffet Tax” is back on the President’s agenda. The tax named after billionaire Warren Buffet would ensure that individuals with incomes of $1 million or more pay their “fair share” by being taxed at a minimum rate of 30%.
Estate And Gift Taxes
Under the President’s proposal, starting in 2018, estate & gift tax rates and exemptions will revert back to the 2009 amounts. So, the current exemption for estates would go from $5.25 million back to $3.5 million, and the tax rate goes from 40% to 45%. For gift taxes the exemption would revert back to $1 million, and there would be no inflation adjustment. Again, I’m baffled by this proposal put forward by President Obama. Just a mere five months ago, under the Fiscal Cliff deal, the rates and exemption amounts were supposed to be made permanent.
Image Source: Capitol Report New Mexico
