Posted on July 17, 2009 by Joseph M. Wallin

Ways and Means Passes Health Reform Legislation

"WASHINGTON, D.C. – The House Committee on Ways and Means today passed H.R. 3200, the America’s Affordable Health Choices Act of 2009, by a vote of 23-18....These provisions will be merged with provisions currently under consideration in the Committees on Energy and Commerce and Education and Labor for consideration by the full House of Representatives in the coming weeks."

The text of H.R. 3200, the America’s Affordable Health Choices Act of 2009.

The individual income tax surcharge provisions are quoted below.

 

SEC. 441. SURCHARGE ON HIGH INCOME INDIVIDUALS.

 

    (a) In General- Part VIII of subchapter A of chapter 1 of the Internal Revenue Code of 1986, as added by this title, is amended by adding at the end the following new subpart:

 

`Subpart B--Surcharge on High Income Individuals

 

      `Sec. 59C. Surcharge on high income individuals.

 

`SEC. 59C. SURCHARGE ON HIGH INCOME INDIVIDUALS.

 

    `(a) General Rule- In the case of a taxpayer other than a corporation, there is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to--

 

      `(1) 1 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $350,000 but does not exceed $500,000,

 

      `(2) 1.5 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $500,000 but does not exceed $1,000,000, and

 

      `(3) 5.4 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $1,000,000.

 

    `(b) Taxpayers Not Making a Joint Return- In the case of any taxpayer other than a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), subsection (a) shall be applied by substituting for each of the dollar amounts therein (after any increase determined under subsection (e)) a dollar amount equal to--

 

      `(1) 50 percent of the dollar amount so in effect in the case of a married individual filing a separate return, and

 

      `(2) 80 percent of the dollar amount so in effect in any other case.

 

    `(c) Adjustments Based on Federal Health Reform Savings-

 

      `(1) IN GENERAL- Except as provided in paragraph (2), in the case of any taxable year beginning after December 31, 2012, subsection (a) shall be applied--

 

        `(A) by substituting `2 percent' for `1 percent', and

 

        `(B) by substituting `3 percent' for `1.5 percent'.

 

      `(2) ADJUSTMENTS BASED ON EXCESS FEDERAL HEALTH REFORM SAVINGS-

 

        `(A) EXCEPTION IF FEDERAL HEALTH REFORM SAVINGS SIGNIFICANTLY EXCEEDS BASE AMOUNT- If the excess Federal health reform savings is more than $150,000,000,000 but not more than $175,000,000,000, paragraph (1) shall not apply.

 

        `(B) FURTHER ADJUSTMENT FOR ADDITIONAL FEDERAL HEALTH REFORM SAVINGS- If the excess Federal health reform savings is more than $175,000,000,000, paragraphs (1) and (2) of subsection (a) (and paragraph (1) of this subsection) shall not apply to any taxable year beginning after December 31, 2012.

 

        `(C) EXCESS FEDERAL HEALTH REFORM SAVINGS- For purposes of this subsection, the term `excess Federal health reform savings' means the excess of--

 

          `(i) the Federal health reform savings, over

 

          `(ii) $525,000,000,000.

 

        `(D) FEDERAL HEALTH REFORM SAVINGS- The term `Federal health reform savings' means the sum of the amounts described in subparagraphs (A) and (B) of paragraph (3).

 

      `(3) DETERMINATION OF FEDERAL HEALTH REFORM SAVINGS- Not later than December 1, 2012, the Director of the Office of Management and Budget shall--

 

        `(A) determine, on the basis of the study conducted under paragraph (4), the aggregate reductions in Federal expenditures which have been achieved as a result of the provisions of, and amendments made by, division B of the America's Affordable Health Choices Act of 2009 during the period beginning on October 1, 2009, and ending with the latest date with respect to which the Director has sufficient data to make such determination, and

 

        `(B) estimate, on the basis of such study and the determination under subparagraph (A), the aggregate reductions in Federal expenditures which will be achieved as a result of such provisions and amendments during so much of the period beginning with fiscal year 2010 and ending with fiscal year 2019 as is not taken into account under subparagraph (A).

 

      `(4) STUDY OF FEDERAL HEALTH REFORM SAVINGS- The Director of the Office of Management and Budget shall conduct a study of the reductions in Federal expenditures during fiscal years 2010 through 2019 which are attributable to the provisions of, and amendments made by, division B of the America's Affordable Health Choices Act of 2009. The Director shall complete such study not later than December 1, 2012.

 

      `(5) REDUCTIONS IN FEDERAL EXPENDITURES DETERMINED WITHOUT REGARD TO PROGRAM INVESTMENTS- For purposes of paragraphs (3) and (4), reductions in Federal expenditures shall be determined without regard to section 1121 of the America's Affordable Health Choices Act of 2009 and other program investments under division B thereof.

 

    `(d) Modified Adjusted Gross Income- For purposes of this section, the term `modified adjusted gross income' means adjusted gross income reduced by any deduction allowed for investment interest (as defined in section 163(d)). In the case of an estate or trust, adjusted gross income shall be determined as provided in section 67(e).

 

    `(e) Inflation Adjustments-

 

      `(1) IN GENERAL- In the case of taxable years beginning after 2011, the dollar amounts in subsection (a) shall be increased by an amount equal to--

 

        `(A) such dollar amount, multiplied by

 

        `(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting `calendar year 2010' for `calendar year 1992' in subparagraph (B) thereof.

 

      `(2) ROUNDING- If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

 

    `(f) Special Rules-

 

      `(1) NONRESIDENT ALIEN- In the case of a nonresident alien individual, only amounts taken into account in connection with the tax imposed under section 871(b) shall be taken into account under this section.

 

      `(2) CITIZENS AND RESIDENTS LIVING ABROAD- The dollar amounts in effect under subsection (a) (after the application of subsections (b) and (e)) shall be decreased by the excess of--

 

        `(A) the amounts excluded from the taxpayer's gross income under section 911, over

 

        `(B) the amounts of any deductions or exclusions disallowed under section 911(d)(6) with respect to the amounts described in subparagraph (A).

 

      `(3) CHARITABLE TRUSTS- Subsection (a) shall not apply to a trust all the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B).

 

      `(4) NOT TREATED AS TAX IMPOSED BY THIS CHAPTER FOR CERTAIN PURPOSES- The tax imposed under this section shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.'.

 

    (b) Clerical Amendment- The table of subparts for part VIII of subchapter A of chapter 1 of such Code, as added by this title, is amended by inserting after the item relating to subpart A the following new item:

 

`subpart b. surcharge on high income individuals.'.

 

    (c) Section 15 Not To Apply- The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

 

    (d) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

 

SEC. 442. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST.

 

    (a) In General- Paragraphs (5)(D) and (6) of section 864(f) of the Internal Revenue Code of 1986 are each amended by striking `December 31, 2010' and inserting `December 31, 2019'.

 

    (b) Transition- Subsection (f) of section 864 of such Code is amended by striking paragraph (7).

 
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Posted on March 5, 2009 by Joseph M. Wallin

Obama Administration Appears Flexible On Proposed Cap On Personal Deductions

From the Wall Street Journal: The Obama administration has proposed, beginning in 2011, to cap personal deductions for high income taxpayers (families with more than $250,000 in income) to 28%.

Yesterday, the Wall Street Journal reported that the Obama Administration appears flexible on this point and may in fact back be willing to back down on it or modify it.  We will keep you posted as we hear more.

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Posted on February 25, 2009 by Joseph M. Wallin

New Federal Income Tax Increase Proposal

The Wall Street Journal is reporting that the Obama administration has proposed the following type of federal income tax increase to fund one of its health care proposals: A limit on the value of deductions to higher income tax bracket taxpayers based on a maximum tax rate of 28%.  For example, if you are in a tax bracket higher than 28%, your deduction would be limited to the amount of the deduction that you would have been entitled to had you been in the 28% tax bracket.   Usually the value of the deduction is the amount of the deductible items times your tax bracket.  So if you paid $1,000 in deductible interest and you were in the 35% tax bracket, your deduction would reduce your taxable income by $350.  Under the Obama proposal, the value of your deduction would be limited to $280.

More information on this in the Wall Street Journal.

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Posted on November 6, 2008 by Joseph M. Wallin

What Will Happen To Federal Income and Employment Tax Rates?

The Wall Street Journal published an editorial on Saturday, October 25, 2008, which made some predictions about what we could expect in terms of federal income and employment taxes for high income earners if Senator Obama was elected President.  Of course, it is impossible to say what will happen, especially with the economy slumping, but the predictions were as follows:

  • a roll back of the 2001 and 2003 tax rate reductions for taxpayers in the top two income tax brackets, raising the top two income tax brackets to 36% and 39.6% from 33% and 35%. The 33% rate currently kicks in at incomes of $164,550 for individuals and $200,300 for joint filers.  This would seem to be very likely.
  • reinstatement of the phaseout of the personal exemptions and itemized deductions for married couples making more than $250,000 a year.  Again, this seems likely.
  • an increase in capital gains tax rates to 20% from 15% for those making more than $250,000 per year; although an exemption on capital gains taxes on start up companies is contemplated, it is unclear how this will work with high income taxpayers, who in general are the only persons entitled under the securities law to make these types of investments.
  • an increase in social security taxes on wages and self employment income.  If you make more than $250,000 in wages or self employment income, President-elect Obama has indicated that he wants to increase the social security tax by 2 to 4 percentage points.  It is unclear whether this increase would apply to both employer and employee, or to both sides of the SECA equation.

We will of course be watching developments.

 

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Posted on November 4, 2008 by Joseph M. Wallin

Can You Accelerate Income To Avoid Upcoming Tax Hikes?

It would appear that if you could accelerate income into 2008 you might avoid the higher tax rates that will come into effect next year.

Professional athletes and their agents are already considering this strategy, as discussed in the article you can find here.

Query whether this will work, or whether Congress will make the point moot by making the tax increases retroactive!

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