New Tax Bill Raising Eyebrows

Sometimes I enjoy getting another professional’s perspective on what is happening in Washington.  Here is a great blog post from the Tax Girl.

Apparently, Congress is on a roll. Just a couple of months after they pushed through the massive health care bill (referred to as the Patient Protection and Affordable Care Act, signed into law in March 2010) and debated the similarly hefty Tax Extenders Bill (referred to as the American Workers, State, and Business Relief Act of 2010, passed by the Senate in March 2010), they’re trying again. Pitched as “amendments to the Senate Amendment to H.R. 4213″ (H.R. 4213 is the Tax Extenders Bill), the Senate and the House have apparently reached a consensus on a new bill and it’s causing quite a commotion.
 
First, the title: American Jobs and Closing Tax Loopholes Act of 2010. Let your mind wander for a minute.
 
Next, the length. When I plowed through it earlier today, the version was a remarkable 433 pages (the officially summary alone is 27 pages). Yeah, for an amendment.
 
And finally, the content. Brace yourself. There are nine chapters:
 
1.         Promoting American Jobs
 
2.         Relief for Working Families
 
3.         Disaster Response
 
4.         Domestic Energy
 
5.         Extension of Other Expiring Tax Provisions
 
6.         Closing Foreign Tax Loopholes
 
7.         Closing Other Tax Loopholes
 
8.         Maintaining Access to Affordable Health Care
 
9.         Other Provisions
 
There’s a lot to take in. I’m going to hit some of the most talked about highlights now and blog a longer summary later. Here are the bits raising eyebrows across the internet today:
 
·         Included in the bill are proposals to increase the Oil Spill Liability Trust Fund liability cap and to increase the Oil Spill Liability Trust Fund solvency. The latter would increase the per-barrel-tax on the oil industry by 24 cents. This is because “a major spill, particularly one in a sensitive environment, could threaten the viability of the fund.” Hmm, reactionary, much?
 
·         Also included in the bill is election to expense advanced mine safety equipment. While tax-neutral, the plan is to encourage mine operations to invest in more mine safety equipment. This makes sense because what’s really needed to push safety in mines is advanced expensing. Losing a miner or two (or 29) apparently isn’t enough.
 
·         The bill includes about $15 billion in foreign tax-related provisions. The plan is to try to curb “abuses of the U.S. foreign tax credit system and other targeted abuses.” Specifically targeted are multi-national companies. While the idea is a good one, there is a lot of chatter about whether continuing to hammer at multi-national companies will actually serve as a deterrent to doing business in the US which is really the opposite intention (it’s really supposed to discourage potentially tax-evasive offshore operations of US companies).
 
·         The bill slowly poisons many s corporations. Okay, that’s a bit dramatic. But the bill purports to raise nearly $10 billion by tacking on payroll taxes to certain service professionals who currently split income as wages and draws. And by certain service professionals, Congress specifically means those in “health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics,, investment advice or management, or brokerage services.” So, um, everyone who uses an s corporation. And likely those who are high wage earners. Make no mistake: this is Congress’ way of hiking taxes on the upper middle class and letting Obama keep his promise of not raising taxes on the middle class. If you aren’t familiar with the way s corporations work, let me just advise that most small business are s corporations specifically because of this payroll tax issue – and if the bill passes, they just got socked with an additional 15% tax. If Congress was looking for a way to encourage under-reporting, mark my words, this is it.
 
·         The bill also contains nearly $5 billion to pay for settlement of what are known as the Cobell and Pigford class action lawsuits. These are, respectively, lawsuits brought over management of trust accounts for Native Americans and discrimination lawsuits brought by black farmers against the USDA (opens as a pdf). Notwithstanding any other issues, there has been grumbling about whether this bill is the appropriate place to tack on these settlement funds.
 
·         Finally, the bill orders the Commerce Department to study job losses over the past 20 years. My guess (and I won’t charge them for it): they’re going to find some.
 
I’m not alone in my concern over the scope of this bill and what it means for our economy. We keep pushing a little bit at the edges of some pretty sweeping changes at an alarming speed – so fast, in fact, that many taxpayers haven’t had time to digest them, much less, react to them. Bits and pieces are just now coming out about laws passed months ago. Maybe it’s time for Congress take a breath and slow down – or, I don’t know, actually read what they’re making into law. Just saying.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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