By Ken Berry
On February 12 – the birthdate of Abraham Lincoln – President Obama delivered a sweeping State of the Union address on a broad array of topics, ranging from the economy to immigration reform to gun control.
The president reiterated his calls to reduce the burgeoning budget deficit through a mix of tax increases and spending cuts. He also said he would support "modest reforms" in government programs, including Medicare and Social Security, as long as the wealthiest one percent of Americans shoulder their fair share of the burden. Finally, tax reform remains one of the top items on the president's agenda.
Not surprisingly, the president didn't present any specific details about tax proposals in his speech, but instead spoke in general terms about corporate and individual tax reforms. Yet the other shoe could drop soon, advises Edward S. Karl, CPA, Vice President-Taxation, American Institute of Certified Public Accountants (AICPA). In this position, Karl serves as the AICPA's principal liaison with the IRS.
"More specifics will come shortly from the budget proposals," Karl told AccountingWEB when asked to comment on the president's State of the Union address. "He talked about helping small businesses, tax reforms, the economy, and bringing back jobs from overseas. The tax reforms were consistent with the proposals from last year." Karl noted that the budget proposals will be released at the end of February, and that's when he expects a sharply divided Congress to renew their heated discussions about taxes.
The battle will probably be a protracted one . . . again. Karl doesn't expect matters to be resolved anytime soon. "Tax reform won't be quick and will drag through the end of the year, likely into 2014," he said. He alluded to the fact that corporate and international reform is difficult to accomplish. Karl also has doubts that any tax changes in the near future will touch some of the "sacred cows," such as deductions for mortgage interest and charitable donations.
Karl said, "Beyond interest groups pushing back, you have to ask, 'What is the economic impact?'" He notes that such reforms could have a negative effect on charitable giving and the real estate market. If any changes in these areas occur, Karl believes that it won't be until 2014, at the earliest. Nevertheless, as Congress and the president try to close the budget gap, one shouldn't be surprised if almost everything is on the table.
At least the battle lines will be more clearly drawn by the end of the month. "Keep an eye out for the budget proposals. They're likely to help fill in the blanks, although there's no guarantee they will be enacted into law," says Karl. "It's a good blueprint to follow."