US Senate Rejects Effort To Repeal Estate Tax

From AutomatedTrader.net:

A Republican-led effort to permanently repeal the estate tax garnered only 39 votes in the Senate, as the motion failed during debate on extending jobless benefits.

Estate-tax votes are closely watched since they occur infrequently, and opponents of the tax and its supporters seek to gain ground among lawmakers.

The motion from Sen. Jim DeMint (R., S.C.), fell on a 39-59 vote. Senators Olympia Snowe and Susan Collins of Maine and George Voinovich of Ohio—voted to oppose repeal.

Senators Blanche Lincoln of Arkansas and Ben Nelson of Nebraska—supported the repeal effort.

Under the 2001 tax cut law, the estate tax was repealed for one year only in 2010. Heirs of those who die this year are not subject to any federal estate tax, although they must pay a capital gains tax when they sell inherited assets.

Congressional Democrats have said they want to reinstate the tax at levels in effect in 2009--a 45% tax rate on inherited wealth that exceeds $3.5 million.

Democrats want investigation into surprise Senate primary winner

An investigation will be underway regarding the legitimacy of the South Carolina Democratic Senate primary winner. It turns out that the winner is a political novice named Alvin Greene, a 32 year old unemployed veteran. Everyone seems to think it a mystery how he won the primary.

Due to Mr. Greene’s past run-ins with the law and possible felony charges for “promoting obscenities” the South Carolina Democratic Party Chair has asked Greene to step down. However, Mr. Greene has no plans to bail out. According to Greene, he “is the best candidate for the United States Senate in the race.”

According to CNN.com, despite running zero ads, Greene toppled former state legislator Vic Rawl with almost 60 percent of the vote. Greene will face Republican Senator Jim DeMint in the general election if he is found to be a legitimate candidate.

WOW, this is amazing. Tell me your thoughts on my Facebook or Twitter.

The Pros and Cons of Value Added Taxes

A few weeks ago the U.S. Senate rejected a proposal to institute a Federal Value Added Tax (VAT) with an 85-13 majority vote. Although common throughout Europe these taxes are highly unpopular in America. The Senate’s decision was significant, as it is the first time either of the Congressional chambers have sent a strong message against a Federal VAT.

It was important for the Senate to go on record voting against a VAT as President Obama’s debt commission is considering a handful of tactics to improve the country’s debt problems. The commission – which is made up of eighteen members including six Senators – is expected to submit a report later this year on how to deal with the country’s financial problems. All six of the Senators in Obama’s commission voted against a VAT. Since the President’s rules assert fourteen of the eighteen members must agree on the commissions final recommendations, it is very unlikely that a VAT will be included in their proposal.

Since we have been hearing so much about a Federal VAT over the past few years, I wanted to take a minute to review some of the largest pros and cons of such a tax with all of my blog readers.

PRO: Increased Revenue

Obviously, the largest benefit of any new taxes would be an increase in federal revenue. Currently, only state and local government agencies charge taxes on purchases, but by instituting a VAT the federal government could benefit from consumer spending as well.

CON: Regressive Tax System

Compared to our current tax system a VAT would be considered significantly regressive, meaning they benefit higher income taxpayers more so than those living closer to the poverty line. As we have all seen from recent headlines 47% of Americans pay little or no federal income tax. However, if the government instituted a VAT many more would pay federal taxes.

PRO: Easier Tax System

The U.S. tax system is very complicated and confusing. More and more Americans pay for professional tax help each year because of how complicated U.S. tax law has become. Proponents of a VAT suggest that it would make taxes more efficient and easier for taxpayers to understand.

CON: Higher Probability of Fraud

Although tax fraud is a serious issue currently facing the Federal government, many experts predict that since a VAT would create a more open system, that would likely lead to increased fraud. Additionally, the change from our current tax system to one with a VAT would be very difficult and time consuming, with lots of opportunities for fraud.

PRO: Lost Online Sales Taxes

Online stores such as Amazon.com, often get out of charging consumers sales taxes because of a 1992 Supreme Court ruling that retailers must have a physical presence in the state to collect excise taxes. However, some experts claim that a VAT could solve this problem of lost online sales taxes by levying taxes on all sales, even online sales.

CON: Less Revenue Than Expected

Unfortunately, it takes government agencies a lot of time and money to enforce VATs. In some countries, the VAT has generated significantly less revenue than expected because of the hefty enforcement costs. As such, it is hard to predict how a VAT would impact federal revenue since there is no way to predict how much the change, and ensuing enforcement would cost.

Finance Reform Bill May Exempt Payday Lenders

There has been a lot of debate in the Senate lately on whether or not to include a provision in a finance reform bill that would crack down on payday lenders and other finance companies that are not directly associated with banks. The New York Times posted a great article explaining the legislation. You can find a snippet of their post below or read the full text here.

Senator Bob Corker, the Tennessee Republican who is playing a crucial role in bipartisan negotiations over financial regulation, pressed to remove a provision from draft legislation that would have empowered federal authorities to crack down on payday lenders, people involved in the talks said. The industry is politically influential in his home state and a significant contributor to his campaigns, records show.

The Senate Banking Committee’s chairman, Christopher J. Dodd, Democrat of Connecticut, proposed legislation in November that would give a new consumer protection agency the power to write and enforce rules governing payday lenders, debt collectors and other financial companies that are not part of banks, Sewell Chan reports in The New York Times.

Late last month, Mr. Corker pressed Mr. Dodd to scale back substantially the power that the consumer protection agency would have over such companies, according to three people involved in the talks.

Mr. Dodd went along, these people said, in an effort to reach a bipartisan deal with Mr. Corker after talks had broken down between Democrats and the committee’s top Republican, Senator Richard C. Shelby of Alabama. The individuals, both Democrats and Republicans, spoke on condition of anonymity because they were not authorized to discuss the negotiations.

Continue reading at NY Times.com…

Senate Ready to Tackle Jobs

The Senate is reportedly already getting to work on Obama’s promise to create more jobs. According to new reports, Democratic Leaders in the Senate are expecting to have a package ready by the end of the week. A vote on the new package could be slated for as early as Monday on the legislation that is expected to create as many as one million new jobs. Checkout the following article on this job creation package, courtesy of CNN.com.

With the balance of power changed in the Senate, Democrats have moved away from introducing a comprehensive bill similar to the $154 billion legislation passed by the House in December. Instead, the Democrats will likely push through smaller measures in stages.

"First of all, we do not have a jobs bill," said Senate Majority Leader Harry Reid, D-Nevada, on Tuesday. "We have a jobs agenda that we're working on."

Sensitive to the political shift, Reid said he's hoping for a bipartisan bill, though he declined to provide details or a cost estimate at Thursday's press conference. But Democrats will push ahead regardless of whether the Republicans join, he said.

Continue reading at CNN.com…

Landrieu, Snowe Introduce Bill to Boost Small Business Contracts

From MSNMoney.com:

U.S. Senate Committee on Small Business and Entrepreneurship Chair, Mary L. Landrieu, D-La., and Ranking Member Olympia J. Snowe, R-Maine, today introduced a bill to modernize and strengthen the Small Business Administration's government contracting programs to help increase small business sales and create American jobs.

"Government contracts are perhaps one of the easiest and most inexpensive ways the government can help immediately increase sales for America's entrepreneurs, giving them the tools they need to keep our economy strong and create jobs," Sen. Landrieu said. "These contracting opportunities represent job creation for small businesses in a way that is unique. When large businesses get new work they typically spread that work among existing employees. When small businesses get these contracts they must staff up to meet the increased demand. By increasing contracts to small businesses by just 1 percent, we can create more than 100,000 new jobs - and today, we need those jobs more than ever."

"Federal contracting opportunities have served as a vital tool for American small businesses, helping them to grow, expand, and hire," said Ranking Member Snowe. "Yet the ability of these companies to earn Federal contracts is frequently stunted by the egregious and repeated failure of Federal agencies to meet their statutory 23-percent small business 'goaling' requirements. Our bill, which is based on legislation I originally introduced as Chair of this Committee in the 109th Congress, will endow the SBA with additional and improved instruments to remedy this consistent underperformance and meet the myriad demands of an ever-changing 21st century contracting environment."

The Estate Tax Explained

Last week the U.S. Senate attempted to decide the fate of the estate tax. Unfortunately, members of Congress failed to pass any type of change to the laws surrounding this tax, which will likely create a mess over the next few years for anyone inheriting a large sum of money or property.

Expiration in 2010

In 2001, a conservative Congress passed legislation gradually decreasing the estate tax rates. Currently there is a 45% tax levied on estates worth more than $3.5 million, or $7 million for couples. However, this tax is set to expire completely beginning on January 1^st, 2009. Since Congress did not pass any extension, beginning in the New Year no estates will be subject to the tax.

Passage in House / Holdup in Senate

A few weeks ago the House of Representatives passed a bill that aimed to extend the current 45% tax. The Senate then attempted to vote on a similar bill last Wednesday that aimed to extend the tax for two months – giving them enough time to hopefully develop a long-term solution – but between strong Republican opposition and a Congress focused on health care reform the effort was unsuccessful. Many experts call the issue a failure on behalf of the Obama administration and Democratic leaders for failing to address the problem before, and by neglecting to work with Republican leaders to develop an amicable solution.

More Aggressive in 2011

Although the estate tax will expire at the end of this year, starting on January 1, 2011 it will return even more aggressive than before. Unless legislation is passed before 2011, the estate tax would resume with a 55% rate on all estates valued at more than $1 million. If enacted, this rate increase would revert the estate tax back to levels seen in the early 1990’s.

Capital Gains vs. Estate

With the estate tax gone in 2010, another tax will likely begin affecting those who inherit $1.3 million or more in assets next year. Typically, these estates would be subject to little or not capital gain taxes, but without an estate tax the opposite would be true. For example, if you inherit a property valued at $1.5 million and decide to sell it then you would have to calculate capital gains based on the value of the home when it was originally purchased, not when you inherited it. Estimates from the House of Representatives assert that over 70,000 people will be affected by this change in capital gains over the next year.

Likelihood of Another Vote

Unfortunately, it is probably too late in the year for the Senate to take any further action on the estate tax. However, Democratic leaders have made the issue a “top priority,” and promise to work on a solution in the beginning of 2010. There is even talk that they may attempt to make the tax retroactive, meaning anyone who inherits a large sum of property or assets could be vulnerable to the estate tax.

Confusing Tax Code

By not coming up with a permanent solution to the estate tax Congress is going to make taxes very difficult for thousands of Americans. The tax code is already horribly complicated and all of these changes to the estate tax will only confuse more taxpayers. Additionally, many taxpayers who inherit a sizeable estate may end up paying more in capital gains than they would have with a 45% estate tax.

Senate Bill Removes ‘Botax,’ Adds Tanning Tax

The Democratic leadership decided to remove the 5% plastic surgery tax from the latest draft of their health care reform bill. The tax was expected to generate $5 billion in federal revenue, and to make up for the loss they have replaced it with a 10% tax on indoor tanning services.

According to the Wall Street Journal, the change is a victory for the American Medical Association, which urged lawmakers to remove the cosmetic-surgery tax after Sen. Reid included it in a draft of the bill he unveiled in November. The medical industry argued that the tax effectively discriminated against women, since they’re more likely to undergo such procedures.

The tanning tax is part of a last-minute package of amendments that are expected to be included in the final bill. It grants an exception for “phototherapy” services that are performed by licensed medical professionals.

Senate set to Advance $1.1T Spending Bill

While the country focuses on the Tiger Woods scandal and the upcoming holidays, the United States senate is set to pass a filibuster proof end-of-year $1.1 trillion spending that will reward most federal agencies with a generous budget increase. It also includes a loan guarantee program for steel companies, and an improved arbitration process to challenge General Motors' and Chrysler's decisions to close more than 2,000 dealerships.

The $1.1 trillion measure combines much of the year's unfinished budget work - only a $626 billion Pentagon spending measure would remain - into a 1,000-plus-page catchall spending bill that would give Cabinet departments such as Education, Health and Human Services and State increases far exceeding inflation.

After a 60-36 test vote on Friday in which Democrats and a handful of Republicans helped the measure clear another GOP obstacle, the bill was expected to win on Saturday the 60 Senate votes necessary to guarantee passage. A final vote is expected Sunday.

The measure provides spending increases averaging about 10 percent to programs under immediate control of Congress, blending increases for veterans' programs, NASA and the FBI with a pay raise for federal workers and help for car dealers.

It bundles six of the 12 annual spending bills, capping a dysfunctional appropriations process in which House leaders blocked Republicans from debating key issues while Senate Republicans dragged out debates.

Just the $626 billion defense bill would remain. That's being held back to serve as a vehicle to advance must-pass legislation such as the debt increase.

Continued at ApNews.MyWay.com…

Homebuyer Tax-Credit Extension Gains Lawmaker Support

Senators are working to make sure that lawmakers are aware of the November 30^th deadline for the first time homebuyers tax credit. Sen. John Isakson, a Republican from Georgia, along with a few other Senators, are pushing to extend the $8,000 credit, which they claim drastically increase homes sales over the past year.

“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.” Executives including Fannie Mae’s Michael Williams and Hyperion Partners LP’s Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it.

“If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession,” Isakson said. December “marks the beginning of the historical worst time for home sales,” he said.

White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

Continue reading at Bloomberg.com…

Senate Finance Reform Package Released to Public

As I blogged about yesterday, Senator Max Baucus’ reform bill is causing quite a stir on Capitol Hill with many predicting a tax increase on the middle class. Now you can read the whole 220-page package proposed by Baucus and decide for yourself.

AIG Bonus Tax Bill May Be Delayed in U.S. Senate

From Bloomberg.com:

The U.S. Senate may wait until next month to vote on a proposed steep tax increase on employee bonuses at American International Group Inc. and other companies that got taxpayer bailouts.

Senate Majority Leader Harry Reid, a Democrat, said today that Republicans had asked for time to study a proposal to impose a 70 percent tax on bonuses like the $165 million paid out by AIG. The insurer received $182.5 billion in U.S. bailout funds, according to the Government Accountability Office.

“We will continue to work to right this egregious misuse of taxpayer dollars,” Reid, of Nevada, said on the Senate floor. “With Republican cooperation we can quickly and responsibly return these funds to the American people.”

This week and next week, Reid said, the Senate will work on a national-service bill and President Barack Obama’s budget proposal. Congress begins a two-week recess on April 6. Reid spokesman Jim Manley said the Senate would have to have unanimous agreement to proceed with the bonus tax legislation before the recess.

On March 19, the House voted overwhelmingly for a 90 percent tax on some bonuses paid by AIG and other companies that got bailouts. Later that day, four senators introduced a measure to impose a 70 percent tax on bonuses, split between the employee and company, in addition to existing income taxes. Reid sought immediate Senate passage, though Republicans objected.

‘Make Mistakes’

Arizona Republican Jon Kyl said today that lawmakers should hold hearings to consider options. “We can make mistakes” when lawmakers act too quickly, he said.

Anti-Tax Haven Bill Coming: U.S. Senate Aides

From Reuters.com:

Offshore tax havens used by rich Americans in Switzerland, the Cayman Islands and other nations are targeted for shutdown by a bill to be offered in the U.S. Senate on Monday, said senior Senate aides.

In legislation that expands on a bill co-sponsored last year with then-Senator Barack Obama, Senator Carl Levin will propose a broad crackdown on tax avoidance schemes estimated to deprive the U.S. government of more than $100 billion a year.

The bill comes just two days ahead of a Senate hearing where a senior UBS AG executive is due to testify about an investigation of the Swiss banking giant.

"Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system," said Levin in a statement given to Reuters. "We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year.

"We can fight back against secrecy jurisdictions and shut down offshore tax abuses if we have the political will."

Companion legislation is expected to be introduced in the U.S. House of Representatives, the aides said.

Both bills will face committee review and some political opposition. Bankers at UBS and other financial institutions have long been among the largest contributors to U.S. politicians' campaigns.

Since last year, three provisions have been added to the Senate bill. One would classify U.S.-controlled foreign corporations as domestic for income tax purposes. Another would close an offshore tax dividend loophole that lets people dodge payment of U.S. taxes on U.S. stock dividends, the aides said.

The third provision would expand tax-reporting requirements for passive foreign investment corporations, they said.

Devore Campaign Creates Funny New Tax Calculator

The Chuck Devore for US Senate campaign has put together an amusing Obama tax calculator, with a pun on his recent appointment of Timothy Geithner. Check out the link below.

The New Obama Tax Calulator.

Senate Panel May Add $69 Billion AMT Plan to Stimulus

From Bloomberg News:

The U.S. Senate’s tax-writing committee might add $69 billion in relief from the alternative- minimum tax to the $825 billion economic stimulus proposal.

The provision benefiting more than 30 million households, primarily with incomes between $100,000 and $500,000, will be considered as an amendment to $272 billion in tax cuts being drafted today by the Senate Finance Committee as part of the broader stimulus plan.

Inclusion of alternative-minimum tax relief would swell the stimulus plan’s tax cuts, which so far are anchored to President Barack Obama’s campaign promise to give workers a tax cut of up to $1,000 by reducing Social Security payroll taxes. The Obama administration urged exclusion of the AMT provision when the House drafted its stimulus bill, House Ways and Means Committee Charles Rangel said last week.

Obama visited the Capitol today to seek support for the legislation from House and Senate Republicans. Before his arrival, House Minority Leader John Boehner and House Minority Whip Eric Cantor urged rank-and-file members at a closed-door meeting to vote against the plan unless more tax relief is added, said a Republican leadership aide.

The AMT amendment is one of as many as 226 under consideration for the tax legislation, which would ease tax burdens on businesses by $128.1 billion this year and next. Another part of the bill would let companies convert losses into tax refunds and provide new relief from taxes due on the value of forgiven corporate debt.

“Today we once again live in times that require action,” Finance Committee Chairman Max Baucus of Montana said as his panel began deliberations. “If we do not act, employment will fall by more than 2 percent in 2009.”

US Lawmakers Debating Obama's Energy Tax Breaks

From Reuters:

The U.S. House Ways and Means Committee on Thursday began debating $20 billion in energy tax credits and related financial incentives that are in the Obama administration's plan to revive the American economy.

The legislation's energy tax breaks would benefit the wind and solar energy industries, encourage energy-efficiency improvements to existing homes and help service stations recoup their costs for installing alternative energy pumps.

The economic stimulus package would extend by three years, to the end of 2012, the date that wind facilities would have to be in place to be eligible for the federal renewable energy production tax credit.

Other qualifying facilities that generate electricity from renewable energy sources, such as biomass, geothermal, small irrigation, hydropower, landfill gas and ocean currents, would also have an extra three years through the end of 2013 to be in service to get the same production tax credit.

The long-term extension of the renewable energy production tax credits, which would cost the government $13.1 billion over 10 years, accounts for more than half of the stimulus package's $20 billion in energy tax breaks and financial incentives being considered by the committee.

Because many renewable energy projects are having a difficult time finding financing in current market conditions, the legislation would allow such facilities in place in 2009 and 2010 to temporarily claim a 30 percent investment tax credit instead of the production tax credit that is normally payable over a 10-year period.