Moderated by Rick Badie
President Barack Obama and Congress struck a deal to avoid the fiscal cliff, but who are the real winners and losers in the last-minute deal? Not the middle class, laments Bernie Marcus, Home Depot co-founder and philanthropist. Ditto for job creators, he writes today. U.S. Rep. Hank Johnson says the plan protects the middle class and, among other things, requires the wealthy to pay a fairer share of taxes. And an Atlanta accountant highlights tax changes for 2013.
Job creators need pro-growth policies
By Bernie Marcus
Middle-class workers may be puzzled this month as they open smaller paychecks. Few knew their payroll tax holiday expired in the fine print of the “fiscal cliff” deal recently reached in Washington. Now the average worker will pay an additional $1,000 in annual taxes, erasing any meager wage gains he or she saw in the past year.
Still, President Barack Obama and Congressional leaders proudly congratulated themselves for saving the middle class from income tax hikes. In fact, the middle class is getting pinched, too.
The deal also raised taxes on entrepreneurs, small business owners and job creators across the country. Even just the talk of raising rates on the nation’s most productive taxpayers stifled investment and hiring long before the new year. The uncertainty fueled by the highly-charged political debate only made it tougher for job creators to make long-range plans.
Congress just passed the largest tax increase in decades. It is hard to imagine economic growth will result.
In fact, job creators are slowly sinking deeper into malaise because the fiscal cliff deal completely ignored the federal government’s reckless spending and crippling debt. They kicked the can down the road again, but not far. Achieving overdue spending cuts was punted to later this month.
President Obama made his perspective abundantly clear to House Speaker John Boehner during the new year negotiations: “We don’t have a spending problem,” he said. That comment left disquieted business leaders shaking their heads.
According to the Heritage Foundation’s “Federal Spending by the Numbers,” total federal spending reached $3.6 trillion or 22.9 percent of the U.S. economy in 2012. In the past 20 years alone, federal spending grew 71 percent faster than the rate of inflation. Entitlement spending more than doubled over the same period.
As a result, the U.S. government borrows 32 cents for every dollar it spends. The middle class pays nearly 25 cents of every dollar earned to the federal government in taxes. Add Social Security, Medicare, payroll, and state and local taxes to the mix, and the government may take nearly half your paycheck in 2013.
Research shows most Americans know their federal government has a spending problem, not a tax problem. And job creators know wasteful spending is a drag on economic growth.
If free markets were uninhibited by harsh regulations, confiscatory business taxes and price controls, businesses would invest and grow. High economic growth would lead to greater wealth, higher employment rates, better standards of living and a more prosperous nation.
Job creators want to get this country working again by enacting pro-growth policies like comprehensive tax reform, regulatory reform and, most importantly, spending cuts. Instead, they are stuck in neutral awaiting another debt ceiling fight as workers open lighter paychecks in the January surprise.
Bernie Marcus, co-founder and former chairman and CEO of Home Depot, is founder of the Job Creators Alliance and founder and chairman of the Marcus Foundation.
More work needed to reduce deficit, debts
By Hank Johnson
The American people demand an end to gridlock, and I am pleased Congress took a step in that direction with the “fiscal cliff” deal reached Jan. 1.
Democracy is not always pretty, but it works when we compromise. I voted for the agreement because it keeps income taxes low for the middle class and provides revenue to help grow our economy and pay down our debt.
Millionaires and billionaires will now pay their fair share through permanent tax-rate increases and closed loopholes, raising $620 billion in revenue. Congress agreed on increased taxes for the wealthy, ensuring we can continue investments in education, transportation, clean energy and manufacturing.
Middle-class families can rest assured their income tax rates will stay low permanently. Without the deal, most families would have seen a $2,200 tax increase on top of the expired payroll tax cut. Now, income taxes will stay low for 98 percent of Americans and 97 percent of small businesses.
For the wealthiest Americans making more than $400,000 a year, tax rates will increase to the level they were under President Clinton — 39.6 percent — when our economy created more than 23 million new jobs. Congress agreed on the principle that deficit reduction should be a balance between spending cuts and revenue increases on the rich — not just a cuts-only approach.
The deal also extends unemployment benefits for 2 million Americans for a year. It extends the earned-income tax credit, the child tax credit, and the college tax credit for five years, while providing for a one-year patch on Medicare reimbursements to doctors, along with a permanent fix for the Alternative Minimum Tax.
Businesses can now write off 50 percent of capital investments in 2013, which should help create jobs in manufacturing and other sectors.
The deal protects seniors and the middle class: Medicare won’t be made into a voucher program, Medicaid won’t be block granted, and the Affordable Care Act remains intact.
We have more work to do to reduce the debt and deficits. I am prepared to do it. But this agreement builds on the $1.2 trillion in spending cuts we have already secured. As we move forward to deal with our fiscal challenges, both spending cuts and asking the wealthy to do a little more will be part of the solution.
We must reduce the deficit. We can’t keep putting wars, prescription plans and tax breaks for the wealthy on the credit card.
How did President Barack Obama put it in his inaugural address? “Medicare, Medicaid and Social Security — these do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make our country great.”
I will continue to fight for the middle class and all those who strive to get into the middle class. We must build an economy that grows from the middle up, not the top down.
Congressman Hank Johnson represents Georgia’s 4th district.
Tax liabilities in 2013
By Michael Thompson
With a last-minute tax bill being approved, the IRS has had to delay acceptance of returns for the 2012 tax year. Many small businesses will not be able to process their returns until late February or early March. Taxpayers who will continue to experience delays in processing include those whose returns have any type of business credits (Form 3800), Depreciation and Amortization (Form 4562) or residential energy credits (Form 5695).
While President Barack Obama is correct that the “fiscal cliff” deal averted middle-class taxpayers from paying upwards of $2,000 more in income taxes, more than 75 percent of taxpayers will still pay more in the form of Social Security taxes. Social Security payroll tax reverted back to 6.2 percent from 4.2 percent. This will mean nearly $1,200 less spending money this year for taxpayers earning between $75,000 and $100,000. Other than this tax, most individual taxpayers will see little change in their overall tax liability this year.
Other 2013 highlights:
* Congress fixed the Alternative Minimum Tax, which would have affected more than 50 million Americans.
* Educators can continue to deduct $250 in job-related expenses as adjustments to income.
* PMI insurance of mortgages can continue to be deducted as mortgage interest.
* The IRS will continue to allow deductions on sales taxes.
* Tuition cost will also continue to be allowed as an adjustment to income.
* Standard business mileage rates have increased to 56.5 cents.
For those continuing through a foreclosure or short-sale on their primary residence and have had any forgiveness of debt, most (if not all) of the amount forgiven will be excluded from taxable income.
The IRS is continues to increase enforcement of other tax requirements that have been implemented over the years. Two items the IRS remains focused on are the Foreign Bank Authorization Report (FBAR) and the 1099-K.
FBAR is an informational return. It is required for any U.S. person who has an interest in, or signature authority over, a foreign financial account that had an amount of at least $10,000 any time during the year.
The FBAR is particularly relevant to taxpayers whose parents or other relatives are still foreign citizens with foreign financial accounts. Problems can arise when the taxpayer only holds “signature authority” on these accounts, though they may hold no financial interest in them. As the IRS continues its enforcement, a large portion of the money in these accounts may become at risk of seizure. FBAR is due June 30 of each year. Penalties for not filing can be severe.
The 1099-K form reports income that small businesses receive from payment processors such as PayPal or other credit card processors. The 1099-K reports gross sales and does not consider charge-backs, refunds or third-party processing fees. This form came out last year, and while the IRS did little with it, enforcement will continue to increase.
Michael Thompson is managing director of Atlanta-based Thompson & Associates CPAs.